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**SECURITIES
  AND EXCHANGE COMMISSION Washington, D.C. 20549**

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FORM 20-F

(Mark One)

|o | 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, 2003                                         

OR

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

For the transition period from   to

Commission file number 0-28584

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.**            
|------------------------------------------------------------
|                                                            
|(Exact
      name of Registrant as specified in its charter)

|ISRAEL                                               
|-----------------------------------------------------
|                                                     
|(Jurisdiction
      of incorporation or organization)

|3A Jabotinsky
      Street, Ramat-Gan 52520, Israel
|---------------------------------------------------
|                                                   
|(Address
      of principal executive offices)     

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

Securities registered or to be registered pursuant to Section 12(g) of the Act:         Ordinary shares, NIS 0.01 nominal value

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

Indicate
the number of outstanding shares of each of the issuers classes of capital or common stock
as of the close of the period covered by the annual report: 249,276,058 ordinary shares, NIS 0.01
nominal value.

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

Yes
    x                
  No   o

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

Item
  17  o      
  Item 18      x

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|**TABLE
      OF CONTENTS**
|---------------------------
|                           
|PART
      I               
|                           
|Item
      1               
|                           
|Item 2                     
|                           
|Item 3                     
|                           
|Item 4                     
|                           
|Item 5                     
|                           
|Item 6                     
|                           
|Item 7                     
|                           
|Item 8                     
|                           
|Item 9                     
|                           
|Item 10                    
|                           
|Item 11                    
|                           
|Item 12                    
|                           
|PART
      II              
|                           
|Item 13                    
|                           
|Item 14                    
|                           
|Item 15                    
|                           
|Item 16                    
|                           
|Item 16A                   
|                           
|Item 16B                   
|                           
|Item 16C                   
|                           
|PART
      III             
|                           
|Item 17                    
|                           
|Item 18                    
|                           
|Item 19                    

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**PART
  I**

|**ITEM
      1.** | **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**
|----------------- | ---------------------------------------------------------------

Not

applicable.

|ITEM
      2. | OFFER
      STATISTICS AND EXPECTED TIMETABLE
|------------- | ---------------------------------------------

Not

applicable.

|**ITEM
      3.** | **KEY
      INFORMATION**
|----------------- | -------------------------

The following selected
consolidated statement of income data for the years ended December 31, 2001, 2002 and 2003, and the
selected consolidated balance sheet data as of December 31, 2002 and 2003, have been derived from
the audited consolidated financial statements of Check Point Software Technologies Ltd. (together
with its subsidiaries, the Company or Check Point) set forth elsewhere in
this Form 20-F. These financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (U.S. GAAP). The selected consolidated statement
of income data for the years ended December 31, 1999 and 2000 and the selected consolidated balance
sheet data as of December 31, 1999, 2000 and 2001 have been derived from the Companys audited
consolidated financial statements not included in this Form 20-F and have also been prepared in accordance
with U.S. GAAP. The selected consolidated financial statements set forth below should be read in
conjunction with and are qualified by reference to the Companys consolidated financial statements
and the related notes as well as Item 5 - Operating and Financial Review and Prospects
included elsewhere in this Form 20-F.

On
December 20, 1999, the Companys Board of Directors approved a two-for-one stock split in the
form of a stock dividend effective January 23, 2000. On June 29, 2000 the Companys Board of
Directors approved a two-for-one stock split in the form of a stock dividend effective July 14, 2000.
On January 18, 2001, the Companys Board of Directors approved a three-for-two stock split in
the form of a stock dividend effective February 1, 2001. All share and per share numbers herein reflect
adjustments resulting from these stock splits.

|                                                    | Year Ended
      December 31,
|--------------------------------------------------- | -----------------------------
|
|
|**Consolidated
      Statement of Income Data:**    |                              
|Revenues                                            | $                            
|                                                    |                              
|Operating
      expenses:                          
|Cost
      of revenues                              |                              
|Research
      and development                      |                              
|Selling
      and marketing                         |                              
|General
      and administrative                    |                              
|                                                    |                              
|Total operating
      expenses                      |                              
|                                                    |                              
|Operating
      income                              |                              
|Financial
      income, net                         |                              
|                                                    |                              
|Income before
      taxes on income                 |                              
|Taxes on
      income                               |                              
|                                                    |                              
|Net Income                                          | $                            
|                                                    |                              
|                                                    |                              
|                                                    |                              
|Basic
      net earnings per share (1)              | $                            
|                                                    |                              
|                                                   
|Shares
      used in computing basic net earnings  
|per
      share (1)                                 |                              
|                                                    |                              
|Diluted net
      earnings per share (1)            | $                            
|Shares
      used in computing diluted net earnings
|per
      share (1)                                 |                              

___________

(1)  See
  Note 2p of Notes to the Consolidated Financial Statements for an explanation
  of the determination of shares used in computing net earnings per share.

3

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|                                           | December 31,
|------------------------------------------ | ------------
|
|
|**Consolidated
      Balance Sheet Data:** |             
|Working capital                            | $           
|Total assets                               |             
|Shareholders
      equity                 |             

**RISK
  FACTORS**

This Form 20-F contains forward-looking statements that involve risks and uncertainties. The statements
contained in this Form 20-F that are not purely historical are forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act), including, without limitation, statements regarding the Companys expectations,
beliefs, intentions, goals, plans, investments or strategies regarding the future and any assumptions
underlying any of the foregoing. Forward-looking statements include, among other, statements in (i)
Item 4  Information on the Company regarding the Companys belief as
to increased acceptance of Internet technologies, expansion of connectivity services, acceleration
of the use of networks, increasing demands on enterprise security systems, the impact of the Companys
relationship with technology partners on its sales goals, the contribution of the Companys
network security products to the Companys future revenue and the development of future products
and (ii) Item 5 - Operating and Financial Review and Prospects regarding, among
other things, charges that may be taken in connection with the acquisition of Zone Labs future amounts
and sources of revenue, ongoing relationships with current and future end-user customers and distributors,
future costs and expenses, and adequacy of capital resources. Forward-looking statements involve
risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect,
could cause the Companys actual results to differ materially from such results discussed in
these statements. Many of these risks and uncertainties are described in the risk factors set forth
below in this section and elsewhere in this Form 20-F. All forward-looking statements included in
this document are based on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements.

Risks Relating to Recent Acquisition of Zone Labs

In
March 2004 we completed the acquisition of Zone Labs, Inc. (Zone Labs). The acquisition
of Zone Labs involves the integration of two companies that have previously operated independently.
The difficulties of combining the companies operations include but are not limited to:  the
necessity of coordinating geographically separated organizations and integrating personnel with diverse
business backgrounds, potential difficulties to retain employees, adverse effects on relationships
with existing partners, etc. The process of integrating operations could cause an interruption of,
or loss of momentum in, the activities of one or more of the combined companys businesses and
the loss of key personnel. The diversion of managements attention and any delays or difficulties
encountered in connection with the proposed acquisition and the integration of the two companies
operations could have an adverse effect on the business, results of operations, financial condition
or prospects of the Company after the acquisition.

In
addition, the Company expects to incur material charges, estimated to be between $70 million and
$100 million, in connection with the recent acquisition of Zone Labs in 2004, mainly related to the
write-off of in-process research and development, amortization of intangible assets and deferred
compensation expenses related to non-vested employee stock options assumed by the Company.

The
recent acquisition may have a dilutive effect on the Companys earnings per share due to the
additional 8.1 shares that will be issued as part of the acquisition, including 2.8 shares that may
be issued in connection with the assumption of Zone Labs options.

Competition

The
market for Internet security and Virtual Private Networking (VPN) products and services is intensely
competitive and the Company expects competition to increase in the future. The Companys principal
Internet security competitors include Cisco Systems, Inc., Internet Security Systems (ISS), Microsoft
Corporation, NetScreen Technologies Inc., Network Associates Inc., Nortel Networks Limited, Secure
Computing Corporation, SonicWALL Inc., Symantec Inc. and WatchGuard Technologies Inc.

Some
  of the Companys current and potential competitors have longer operating
  histories, greater name recognition, access to larger customer bases and significantly
  greater financial, technical and marketing resources than the Companys.
  As a result, they may be able to adapt more quickly to new or emerging technologies
  and changes in customer requirements or to devote greater resources to the promotion
  and sale of their products than the Company. In addition, the Company believes
  that there may be increasing consolidation in the Internet security market that
  may result in the introduction of combined or bundled products at lower prices
  than the prices of the Companys products. These consolidations, together
  with other strategic alliances among other industry participants, may also result
  in loss of market share. There can be no assurance that the Company will be
  able to compete successfully against current and future competitors. Increased
  competition may result in price reductions, reduced gross margins and loss of
  market share, any of which will materially adversely affect the Companys
  business, operating results and financial condition.

4

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Vendors
of operating system software or networking hardware may enhance their products to include functionality
that is currently provided by the Companys products. The widespread inclusion of the functionality
of the Companys software as standard features of operating system software or networking hardware
could render the Companys products obsolete and unmarketable, particularly if the quality of
such functionality were comparable to that of the Companys products. Furthermore, even if the
network security functionality provided as standard features by operating systems software or networking
hardware is more limited than that of the Companys VPN-1/FireWall-1 software, there can be
no assurance that a significant number of customers would not elect to accept more limited functionality
in lieu of purchasing additional software. In the event of any of the foregoing, the Companys
business, operating results and financial condition will be materially and adversely affected. See
Item 4  Information on the Company.

Rapid Technological Change

The
Internet security and VPN industry is characterized by rapid technological advances, changes in customer
requirements, frequent new product introductions and enhancements and evolving industry standards
in computer hardware and software technology. As a result, the Company must continually change and
improve its products in response to changes in operating systems, application software, computer
and communications hardware, networking software, programming tools and computer language technology.
The introduction of products embodying new technologies and the emergence of new industry standards
may render existing products obsolete or unmarketable. In particular, the market for Internet and
intranet applications is relatively new and is rapidly evolving. The Companys future operating
results will depend upon the Companys ability to enhance its current products and to develop
and introduce new products on a timely basis that address the increasingly sophisticated needs of
its end-users and that keep pace with technological developments, new competitive product offerings
and emerging industry standards. While the Company has been successful in developing and marketing
new products or product enhancements that respond to technological change and evolving industry standards,
there can be no assurance that the Company will continue to do so, or that the Company will not experience
difficulties that could delay or prevent the successful development, introduction and marketing of
these products, or that any new products and product enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. If the Company does not respond adequately to the
need to develop and introduce new products or enhancements of existing products in a timely manner
in response to changing market conditions or customer requirements, the Companys business,
operating results and financial condition will be materially adversely affected. See Item 4
 Information on the Company.

Potential Fluctuations in Future Operating Results

The
quarterly operating results of the Company can vary significantly due to several factors, including
the occurrence of Internet security breaches or threats, regional or global prevailing economic and
political conditions, seasonal trends in customer purchasing, the volume and timing of orders and
the ability to fulfill orders, the level of product and price competition, the Companys ability
to develop new and enhanced products and control costs, the mix of products and goods sold, the mix
of distribution channels through which products are sold, the Companys ability to integrate
the technology and operations of acquired businesses with those of the Company, changes in customer
capital spending budgets, fluctuations in foreign currency exchange rates and general economic factors.

The
Companys sales to Asia and the Pacific Rim (including Japan) were $93 million in 2001, $69
million in 2002 and $71 million in 2003, representing 17%, 16% and 16% of the Companys revenues
for 2001, 2002 and 2003, respectively. The economy in this region is still unstable and therefore
the Company cannot predict if similar levels of sales in the region are sustainable.

The
Companys revenues are subject to seasonal fluctuations related to the slowdown in spending
activities for the quarter ending September 30 and the increased activity related to the year-end
purchasing cycles of many end-users of the Companys products. The Company believes that it
will continue to encounter quarter-to-quarter seasonality that could result in proportionately lower
sales in the quarters ending September 30 and March 31 relative to sales in the quarters
ending June 30 and December 31.

The
  Company operates with virtually no backlog and, therefore, the timing and volume
  of orders within a given period and the ability to fulfill such orders determines
  the amount of revenues within a given period. The Companys sales are principally
  derived through indirect channels, which make revenues from such sales difficult
  to predict. Furthermore, the Companys expense levels are based, in part,
  on expectations as to future revenues. If revenue levels are below expectations,
  operating results are likely to be adversely affected, since most of the Companys
  expenses are not variable. As a result, the Company believes that period-to-period
  comparisons of its results of operations are not necessarily meaningful and
  should not be relied upon as indications of future performance. If the Companys
  operating results were below the expectations of public market analysts and
  investors, the price of the Companys ordinary shares would likely be materially
  adversely affected. See Item 5- Operating and Financial Review and Prospects.

5

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Potential Decline in Operating Margins

The
Company may experience a decline in operating margins due to the following reasons: the integration
of Zone Labs, including estimated charges of $70 million to $100 million for in-process research
and development, amortization of intangible assets and deferred compensation expense; increasing
competition and pricing pressure; additional investments in the continuing development and expansion
of the Companys sales and marketing organization, including the expansion of its field organization
both in the United States and additional countries in Europe, Asia, and Latin America; additional
expansion of the research and development organization and the expected growth in revenues derived
from products incorporating hardware. As a result, operating margins may decrease from historical
levels. The amount and timing of the abovementioned additional expenses are likely to result in fluctuations
in operating margins. See Item 5 - Operating and Financial Review and Prospects.

Risks Associated With Emerging Network Security, Internet and Intranet Markets

The
markets for the Companys products are rapidly evolving. There can be no assurance that the
market for Internet security solutions will continue to expand. Continued growth of this market will
depend, in large part, upon the continued expansion of Internet usage and the number of organizations
adopting or expanding intranets, upon the ability of their respective infrastructures to support
an increasing number of users and services, and upon the continued development of new and improved
services for implementation across the Internet, and between the Internet and intranets. If the necessary
infrastructure or complementary products and services are not developed in a timely manner and, consequently,
the enterprise security, Internet and intranet markets fail to grow or grow more slowly than the
Company currently anticipates, the Companys business, operating results and financial condition
will be materially adversely affected. See Item 4  Information on the Company.

Dependence upon Limited Number of Key Distributors and Resellers; Product Concentration; Impact of
New Product Introductions

In
2003, sales to the Companys five largest distributors accounted for approximately 35% of the
Companys revenues. The Company expects that it will continue to be dependent upon a limited
number of distributors for a significant portion of its revenues. If anticipated orders from these
resellers fail to materialize, the Companys business, operating results and financial condition
will be materially adversely affected.

The
Company has derived most of its revenues, and expects to continue to derive the vast majority of
its revenues in the foreseeable future, from sales of its Internet security products, packaged and
marketed mostly under the VPN-1 brand, including related software subscriptions, support and
technical services and training programs. The Companys future financial performance will depend
in significant part on the successful development, introduction, marketing and customer acceptance
of new products and enhancements and new features for its existing product lines. See Item
4  Information on the Company and Item 5 - Operating and Financial Review
and Prospects.

Dependence upon Key Personnel

The
Companys future performance depends, in significant part, upon the continued service of its
key technical, sales and management personnel, including Gil Shwed, Marius Nacht and Jerry Ungerman.
The loss of the services of one or more of the Companys key personnel could have a material
adverse effect on the Companys business, operating results and financial condition. The Companys
future success also depends on its continuing ability to attract and retain highly qualified technical,
sales and managerial personnel. Competition for such personnel is significant, and there can be no
assurance that the Company can retain its key technical, sales and managerial employees or that it
can attract, motivate or retain other highly qualified technical, sales and managerial personnel
in the future. If the Company cannot retain or is unable to hire such key personnel, the Companys
business, operating results and financial condition will be materially adversely affected. See Item 4
 Information on the Company.

Risk of Litigation

The
Company has been a party to various lawsuits and other legal proceedings in the normal course of
its business. In addition, the Company has received a number of class action complaints alleging
violations of the federal securities laws. See Item 8  Financial Information.  Legal
proceedings can be expensive, lengthy and disruptive to normal business operations, regardless of
their merit. Moreover, the results of complex legal proceedings are difficult to predict and an unfavorable
resolution of a lawsuit or proceeding could have a material adverse effect on the Companys
business, results of operations or financial condition.

Principal Operations in Israel

The
  Company is incorporated under the laws of the State of Israel, and its principal
  offices and research and development facilities are located in Israel. Although
  most of the Companys sales are currently made to distributors outside
  Israel, the Company is nonetheless directly influenced by the political, economic
  and military conditions affecting Israel. Major hostilities involving Israel
  or the interruption or curtailment of trade between Israel and its present trading
  partners could have a material adverse effect on the Companys business,
  operating results and financial condition. Furthermore, several countries restrict
  business with Israeli companies. In addition, all nonexempt male adult citizens
  of Israel, including some of the Companys officers and employees, are
  obligated to perform military reserve duty and are subject to being called for
  active duty under emergency circumstances. While the Company has operated effectively
  under these requirements since its incorporation, the Company cannot predict
  the full impact of such conditions on the Company in the future, particularly
  if emergency circumstances occur. If many of the Companys employees are
  called for active duty, the Companys operations in Israel and its business
  may be adversely affected.

6

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International Operations

The
Company intends to continue to expand its international operations, which will require significant
management attention and financial resources. In order to continue to expand worldwide sales, the
Company needs to establish additional marketing and sales operations, hire additional personnel and
recruit additional distributors internationally. To the extent that the Company is unable to do so
effectively, the Companys growth is likely to be limited and the Companys business, operating
results and financial condition will be materially adversely affected. In addition, as the Company
expands its international operations, a portion of revenues generated in international jurisdictions
may be subject to taxation by such jurisdictions at rates higher than those to which the Company
is subject in Israel. Most of the Companys worldwide sales are currently denominated in U.S.
dollars. An increase in the value of the U.S. dollar relative to foreign currencies would make the
Companys products more expensive and, therefore, potentially less competitive in those markets.
Additional risks inherent in the Companys worldwide business activities generally include unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs of localizing products
for foreign countries, lack of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in operations management, potentially adverse tax consequences,
including restrictions on the repatriation of earnings, and the burdens of complying with a wide
variety of foreign laws. There can be no assurance that such factors will not have a material adverse
effect on the Companys future international sales and, consequently, the Companys business,
operating results and financial condition. See Item 4  Information on the Company
and Item 5  Operating and Financial Review and Prospects.

Product Liability; Risk of Product Defects

The
Companys sales agreements typically contain provisions designed to limit the Companys
exposure to potential product liability or related claims. In selling its products, the Company relies
primarily on shrink wrap licenses that are not signed by the end-user, and, for this
and other reasons, such licenses may be unenforceable under the laws of certain jurisdictions. As
a result, the limitation of the liability provisions contained in the Companys agreements may
not be effective. The Companys products are used to manage network security, which may be critical
to organizations, and, as a result, the sale and support of products by the Company may entail the
risk of product liability and related claims. A product liability claim brought against the Company
could have a material adverse effect upon the Companys business, operating results and financial
condition. Software products as complex as those offered by the Company may contain undetected errors
or failures when first introduced or when new versions are released. In particular, the personal
computer hardware environment is characterized by a wide variety of non-standard configurations that
make pre-release testing for programming or compatibility errors very difficult and time-consuming.
Despite testing by the Company and by current and potential distributors, there can be no assurance
that errors will not be found in new products or releases after commencement of commercial shipments.
The occurrence of these errors could result in adverse publicity, loss of or delay in market acceptance
or claims by distributors against the Company, any of which could have a material adverse effect
upon the Companys business, operating results and financial condition. See Item 4 
Information on the Company.

Dependence on Proprietary Technology; Risks of Infringement

The
  Company relies primarily on a combination of common law copyright and trademark
  laws, trade secrets, confidentiality procedures and contractual provisions to
  protect its proprietary rights as set forth below in the section entitled Proprietary
  Rights in Item 4  Information on the Company.  The
  Company has certain patents in the U.S. and some other countries, as well as
  patent applications pending. There can be no assurance that the Companys
  patent applications will be issued either at all or within the scope of the
  claims sought by the Company. Furthermore, there can be no assurance that any
  issued patent will not be challenged, and if such challenges are brought, that
  such patents will not be invalidated. In addition, there can be no assurance
  that others will not develop technologies that are similar or superior to the
  Companys technology or design around any patents issued to the Company.
  Despite the Companys efforts to protect its proprietary rights, unauthorized
  parties may copy aspects of the Companys products or obtain and use information
  that the Company regards as proprietary. Policing any of such unauthorized uses
  of the Companys products is difficult, and although the Company is unable
  to determine the extent to which piracy of its software products exists, software
  piracy can be expected to be a persistent problem. In addition, the laws of
  some foreign countries do not protect the Companys proprietary rights
  as fully as do the laws of the United States or Israel. There can be no assurance
  that the Companys efforts to protect its proprietary rights will be adequate
  or that the Companys competitors will not independently develop similar
  technology.

7

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Approved Enterprise Status

The
Company receives significant tax benefits in Israel, particularly as a result of the Approved Enterprise
status of the Companys facilities and programs. To be eligible for tax benefits, the Company
must meet certain conditions, relating principally to adherence to the investment program filed with
the Investment Center of the Israeli Ministry of Industry, Trade and Labor and to periodic reporting
obligations. Although the Company believes that it will be able to meet such conditions in the future,
if the Company fails to meet such conditions it would be subject to corporate tax in Israel at the
statutory rate of 36%, and could be required to refund the tax benefits already received, together
with linkage adjustment to the Israeli consumer price index and interest. The law and regulations
prescribing the benefits provide for an expiration date for the grant of new benefits. The expiration
date has been extended several times in the past. The expiration date currently in effect is June
30, 2004 (which may be extended by ministerial decision until December 31, 2004), and no new benefits
will be granted after that date unless the expiration date is again extended. There can be no assurance
that new benefits will be available after June 30, 2004, or that existing benefits will be continued
in the future at their current level or at any level. A termination or reduction of certain programs
and tax benefits (particularly benefits available to the Company as a result of the Approved Enterprise
status of the Companys facilities and programs) or a requirement to refund the tax benefits
already received, would have a material adverse effect on the Companys business, operating
results and financial condition. See Item 4  Information on the Company and Israeli
Taxation, Foreign Exchange Regulation and Investment Programs in Item 10  Additional Information.

Anti-Takeover Effects of Israeli Laws

Under
the Israeli Companies Law, a merger is generally required to be approved by the shareholders and
board of directors of each of the merging companies. Shares held by a party to the merger and certain
of its affiliates are not counted toward the required approval. If the share capital of the company
that will not be the surviving company is divided into different classes of shares, the approval
of each class is also required. A merger may not be approved if the surviving company will not be
able to satisfy its obligations. At the request of a creditor, a court may block a merger on this
ground. In addition, a merger can be completed only after all approvals have been submitted to the
Israeli Registrar of Companies and 70 days have passed from the time that a proposal for approval
of the merger was filed with the Registrar.

The
Israeli Companies 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 25% shareholder
of the company. This rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Israeli Companies 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 someone else already holds a majority of the voting power
of the company. These rules do not apply if the acquisition is made by way of a merger.

Regulations
promulgated under the Israeli Companies Law provide that these tender offer requirements do not apply
to companies whose shares are listed for trading outside of Israel if, according to the law in the
country in which the shares are traded, including the rules and regulations of the stock exchange
on which the shares are traded, either:

| |  | There is
      a limitation on acquisition of any level of control of the company; or                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                              
| |  | The acquisition
      of any level of control requires the purchaser to do so by means of a tender
      offer to the public.

The
Israeli Companies Law provides specific rules and procedures for the acquisition of shares held by
minority shareholders, if the majority shareholder holds more than 90% of the outstanding shares.
Israeli tax law treats specified acquisitions, including a stock-for-stock swap between an Israeli
company and a foreign company, less favorably than does U.S. tax law.

These laws may have the effect
of delaying or deterring a change in control of the Company, thereby limiting the opportunity for
shareholders to receive a premium for their shares and possibly affecting the price that some investors
are willing to pay for the Companys securities.

Provisions Affecting a Potential Change of Control; Potential Rights of Unissued Preferred Shares

The
  Companys Articles of Association provide that the Companys Board
  of Directors has the authority to issue up to 5,000,000 preferred shares and
  to determine the price, rights (including voting rights), preferences, privileges
  and restrictions of such preferred shares, without any vote or actions by the
  Companys shareholders. If this provision withstands judicial scrutiny
  under the Israeli Companies Law, the rights and preferences of such preferred
  shares could include a preference over the ordinary shares on the distribution
  of the Companys assets upon a liquidation or sale of the Company, preferential
  dividends, redemption rights, and the right to elect one or more directors and
  other voting rights. The rights of the holders of the ordinary shares will be
  subject to, and may be adversely affected by, the rights of the holders of any
  preferred shares that may be issued in the future. The Company has no current
  plans to issue preferred shares. The issuance of preferred shares, while providing
  desirable flexibility in connection with possible acquisitions and other corporate
  purposes, could have the effect of making it more difficult for a third party
  to acquire a majority of the outstanding voting shares of the Company. Furthermore,
  certain provisions of the Companys Articles of Association could delay
  or make more difficult a merger, tender offer or proxy contest involving the
  Company. These provisions stipulate that the Company cannot engage in a business
  combination with an interested shareholder (defined generally as the beneficial
  owner of 15% of the outstanding shares and its affiliates) for a period of three
  years following the date that such shareholder became an interested shareholder,
  unless certain conditions are met. These provisions may have the effect of delaying
  or deterring a change in control of the Company, thereby limiting the opportunity
  for shareholders to receive a premium for their shares and possibly affecting
  the price that some investors are willing to pay for the Companys securities.

8

---

---

Concentration of Share Ownership

As
of February 16, 2004, the directors and executive officers of the Company beneficially owned approximately
29% of the outstanding ordinary shares of the Company. The percentage of ownership is calculated
based on number of ordinary shares owned, directly or indirectly, and the number of options
immediately exercisable or that are exercisable within 60 days from December 31, 2003. As a result,
these shareholders are able to exercise significant influence over all matters requiring shareholder
approval, including the election of directors and approval of significant corporate transactions.
Such concentration of ownership may have the effect of delaying or preventing a change in control
of the Company. See Item 7 - Major Shareholders and Related Party Transactions.

Indemnification of Directors and Officers

The
Company has agreements with its directors and senior officers which provide, subject to Israeli law,
for the Company to indemnify these directors and senior officers for (a) monetary liability
imposed upon them in favor of a third party by a judgment, including a settlement or an arbitral
award confirmed by the court, as a result of an act or omission of such person in his capacity as
a director or officer of the Company, and (b) reasonable litigation expenses, including attorneys
fees, incurred by such a director or officer or imposed on him by a court, in a proceeding brought
against him by or on behalf of the Company or by a third party, or in a criminal action in which
he was acquitted, or in a criminal action which does not require criminal intent in which he was
convicted, in each case relating to acts or omissions of such person in his capacity as a director
or officer of the Company.

Exchange Controls and Other Limitations Affecting Security Holders

In
1998, the Israeli currency control regulations were liberalized significantly, and there are currently
no control restrictions on remittances of dividends on securities of Israeli companies (provided
that Israeli income tax has been paid or withheld thereon) or on the proceeds from the sale of Israeli
securities. Legislation remains in effect, however, pursuant to which currency controls can be imposed
by administrative action at any time.

Neither
the Memorandum and Articles of Association of the Company nor the laws of Israel restrict in any
way the ownership or voting of ordinary shares by non-residents of Israel, except with respect to
citizens of countries, which are in a state of war with Israel.

|**ITEM
      4.** | **INFORMATION
      ON THE COMPANY**
|----------------- | ------------------------------------

General

Check
Point develops markets and supports Internet security and VPN solutions for enterprise and high-end
networks, service providers, small and medium businesses, and consumers. The Company delivers solutions
that enable secure, reliable and manageable communications over Internet Protocol (IP) networks including
the Internet, intranets and extranets. The technology of Check Point is aimed to provide enterprises
with intelligent security solutions for their most critical information security challenges in three
distinct areas: perimeter, Web and internal networks. The capabilities of Check Point products can
be extended with the Open Platform for Security (OPSEC), enabling integration with leading hardware
appliances and third-party security software applications.

In

March 2004, the Company completed the acquisition of privately held Zone Labs for approximately
$114
million in cash and 5.3 million ordinary shares. The Company also assumed Zone Labs
outstanding
employee stock options which could convert to approximately 2.8 million Check Point
shares.

Zone
Labs is a provider of endpoint security solutions for enterprises, small businesses and consumers.
Zone Labs product offerings include Zone Labs Integrity security platform for the enterprise
market, ZoneAlarm and ZoneAlarm Pro desktop security software mainly to consumers and small businesses,
and the IMsecure product line, its instant messaging (IM) security solutions for enterprises, small
businesses and consumers.

Check
  Point was incorporated in 1993 and its address is 3A Jabotinsky Street, Ramat-Gan
  52520, Israel. The telephone number is 972-3-753-4555. The Companys website
  is www.checkpoint.com.  The contents of the Companys website
  are not incorporated by reference into this Form 20-F.  This Form 20-F
  can be obtained upon request from the Companys investor relations department,
  800 Bridge Parkway, Redwood City, California 94065 (telephone no. 650-628-2000).

9

---

---

Industry Background

Information,
and the ability to access and distribute it, is a key strategic asset in todays competitive
business environment. This need to effectively use and communicate information as well as work more
collaboratively has led to the extensive deployment of network-based communications systems (connectivity).
Increased connectivity is in turn increasing the need for technology to safeguard and manage the
access to information available over these increasingly global networks.

| | Increase
      in Connectivity
| | ------------------------------

The
network computing market has undergone three major transitions over the past decade, which has contributed
to the increase in global connectivity. The first of these transitions was the migration of corporate
computing environments from centralized mainframe systems to distributed client/server environments.
The ability to access and share information through client/server technology has expanded the need
for connectivity beyond workgroup LANs (Local Area Networks) to enterprise-wide networks spanning
multiple LANs and WANs (Wide Area Networks). The second major transition has been the widespread
adoption of the Internet for business-to-business communications. Internet-based business applications
have rapidly expanded beyond e-mail to a broad range of business applications and services including
electronic publishing, direct to customer transactions, product marketing, advertising and customer
support. The emergence of increased reliance on the Internet for business communications and transactions
increases the need for and associated challenges in providing secure access to information and applications.
Finally, companies of all sizes in most industries are embracing and supporting increased connectivity
for mobile and remote employees. This includes connectivity to corporate data and application resources,
as well as general Internet access. Remote users are increasingly able to receive more and better
information from a growing spectrum of devices, including laptops, personal digital assistants, and
cell phones. The expansion of network access to mobile workers is driving demand to secure all devices
with Internet access, as well as those connecting to the corporate network. These transitions and
the need for secure, managed communications, have led to the broad acceptance of virtual private
networks through the use of the public Internet infrastructure and associated protocols and applications,
sharing information and utilizing services both within the enterprise and with business partners
and customers are now widely adopted. As a result, businesses are able to share internal information
and to run enterprise applications across geographically dispersed facilities as well as enable customers,
suppliers and other business partners to inexpensively link into their enterprise information systems.
As Internet protocols and infrastructure gain increasingly widespread acceptance for global communication,
new wide-area connectivity services continue to emerge at a rapid rate, such as database access,
transaction-processing services, voice over IP services and video teleconferencing services. This
expansion of services and applications is further accelerating the use of networks as global communication systems.

| | The Need for Security
| | ---------------------

The
growth of Internet connectivity among organizations of all sizes has increased the risk that corporate
Information Technology (IT) resources can be attacked via the Internet. Firms have recognized this
risk and are deploying security solutions in an effort to protect company confidential information
from unauthorized access. The primary means of controlling access to corporate networks and protecting
against attacks is the deployment of Internet firewalls. Firewalls are typically deployed at the
demarcation of the corporate LAN and the Internet, and are used to strictly control traffic into
and out of the companys network. Firewall technology is currently undergoing an evolution,
enabling it to detect and defeat highly sophisticated network and application-level attacks that
are increasingly prevalent on the Internet today.

In
addition to protecting corporate IT assets from attack, corporations take steps to guard sensitive
company information traversing untrusted networks, such as the Internet. Securing company information
on the Internet is critical as more organizations are utilizing the Internet as their corporate network
backbone to link company offices and employees. Putting sensitive information on the Internet without
adequate security exposes confidential data to the public. To mitigate this risk, increasing number
of firms is deploying VPNs to encrypt and authenticate their Internet-bound traffic. Leveraging standards-based
VPN technology enables organizations to connect offices and remote employees via the Internet, while
maintaining the privacy and integrity of communications.

IT
security administrators within corporations have long focused on securing the network perimeter.
With the rise of costly worms and other attacks introduced from within the internal network through
mobile and wireless devices, organizations have realized the importance of securing their internal
networks. But while many of the same principles used to construct and operate perimeter security
solutions also apply to internal networks, internal networks are much more complex and have unique
security requirements.

Frequently,
firewalls and VPNs are deployed together on the same platform. Integrating firewall and VPN functionality
delivers greater security for all traffic and eases the management burden on security and network
administrators.

10

---

---

Technology

Check
Point network security solutions include various technologies that enable our customers to define
their network security policies, enforce these policies across their networks, collect information
and monitor the security and traffic flow and analyze and update those configurations to reflect
changes in the network and in the security policies. The Companys products are packaged and
marketed under different names and address security tasks in various environments and a variety of
price points.

| | Stateful
      Inspection Technology
| | ------------------------------------

Check
Points VPN-1 product offerings are based upon Stateful Inspection technology that enables the
screening of all communications attempting to pass through a gateway in a secure but efficient
manner. By extracting and maintaining extensive state information from all relevant communication
layers, the system can verify data for full compliance with the security and traffic policy and make
intelligent security and traffic prioritization decisions. By extracting and analyzing data in place
without making a copy, Stateful Inspection results in virtually no performance degradation, enabling
VPN-1 product offerings to scale effectively with increasing network bandwidth. In addition, Check
Points proprietary implementation of Stateful Inspection in a virtual machine design
provides in-place upgradeability and is designed to enable the Companys products to be easily
ported to a wide range of platforms. Furthermore, because Check Points products reside at network
access points, which are the critical convergence points for network security and traffic management,
the Company is able to apply this same architectural foundation and inspect traffic only once for
both critical network decisions and traffic management, resulting in increased network performance.

Security and Network Traffic Enforcement Technologies
(based on Stateful Inspection)

Check
Point VPN-1 enforcement points are typically installed at the network perimeter (as security gateways),
deployed on critical servers and installed on client platforms (with VPN-1 SecureClient). These enforcement
points implement the companys patented Stateful Inspection technology using the INSPECT engine.
The INSPECT engine scans all incoming and outgoing IP traffic and is based on the Companys
patented Stateful Inspection technology, which matches all traffic against the security policy. The
INSPECT engine can be enhanced by the Company, its partners, or users by using the INSPECT programming
language.

Based
on fine-grained matching, network traffic can be dropped (indicating a violation of the security
policy), encrypted and forwarded (secured VPN traffic), prioritized (FloodGate-1 QoS) or sent for
further analysis through additional enforcement modules. Additional enforcement modules perform functions
such as checking the credentials and authentication of requesting users or inspecting traffic through
screening technology such as URL filtering or an Anti-Virus system. Many of these additional security
technologies are provided by third party vendors and are integrated through the OPSEC architecture.
In addition, technologies like Check Points SecureXL further accelerate the performance of
security and network operations using system extensions or third party ASIC-based accelerators and platforms.

| | Application
      Intelligence
| | ------------------------------

Check
Points Application Intelligence is a set of advanced capabilities, integrated into VPN-1, Check Point
InterSpect and SmartDefense product offerings, which detect and prevent application-level attacks.
Some of the most serious threats in todays Internet environment come from attacks that attempt
to exploit application vulnerabilities. Since application-level attacks tend to be sophisticated
in nature, effective defenses must be equally sophisticated and intelligent.

| | Security
      Management Architecture (SMART)
| | ----------------------------------------------

Check
Points products are based on its SMART architecture, which allows configuration and management
of security policies from a single, centralized administrative workstation. Security policies can
be defined and deployed for a single security gateway protecting a small business, for multiple gateways
in an enterprise network environment, or for multiple security domains allowing a service provider
to deliver security to a large number of customers, or subscribers. An object-oriented architecture
allows for the efficient storage and specification of security policy elements (such as computers,
users, networks and network devices, network services and security rules). Powerful management tools,
such as object managers, audit and network activity logs, monitoring tools and policy editors are
based on this unifying architecture. The Companys products contain extensive monitoring and
reporting capabilities designed to improve the manageability of the system.

| | SecurePlatform
| | --------------

SecurePlatform
  enables easy deployment of the Companys products on a variety of open
  systems. SecurePlatform bundles certain Companys products with a hardened
  and optimized version of the Linux operating system, with a set of tools in
  order to ease the setup and network configuration. SecurePlatform allows improved
  cost/performance and reduced total cost of ownership for security open servers.

11

---

---

| | SecureXL
| | --------

Check Points SecureXL is a software interface that enables Check Point to leverage technologies
from multiple silicon, appliance and computer system partners to accelerate the performance of firewall
and VPN gateways by off-loading simple, though computationally intensive functions to third-party
packet processors. Using SecureXL different hardware appliance vendors can stimulate the performance
of Secured by Check Point appliances and provide greater value to their customers that
are benefiting from wire-speed advanced security.

| | Open Platform
      for Security (OPSEC)
| | ----------------------------------------

The
OPSEC architecture provides a single platform that manages various aspects of network security through
an open, extensible management framework. Various third-party security applications plug into the
OPSEC framework through published application programming interfaces (APIs), such as the CVP (Content
Vectoring Protocol) which integrates virus scanning software and other content inspection programs,
UFP (URL Filtering Protocol) which integrates URL list services, and SAMP (Suspicious Activity Monitoring
Protocol) which integrates suspicious activity monitoring programs. OPSEC also supports industry-standard
protocols such as RADIUS, IPSec, and SNMP. Once integrated into the OPSEC framework, all applications
can be set-up and managed from a central point, utilizing a single policy editor.

| | SmartDefense
| | ------------

Check
Point SmartDefense is an Active Defense solution which utilizes Stateful Inspection and Application
Intelligence technologies to actively protect organizations against network and application level
attacks by using intelligent security technology, which blocks attacks by type and class. SmartDefense
provides a centralized console for real-time information on attacks, as well as attack detection,
blocking, logging, auditing and alerting. Check Point is offering a real time update subscription
service to SmartDefense users, allowing security administrators to mitigate new vulnerabilities in
a simple and convenient way. Check Point provides up to date security for its customers using SmartDefense
Updates service, a supplementary service based on SmartDefense capabilities, which provides both
advisories and additional attack mitigation capabilities.

The
main technologies used by recently acquired Zone Labs include the following:

| | Cooperative
      Enforcement
| | -----------------------------

The
Zone Labs Cooperative Enforcement technology enables to integrate with network gateway products
- from VPNs to switches to wireless access points - in order to ensure that every endpoint is compliant
with security policy before it is allowed access to network resources.

| | TrueVector
      Technology
| | ---------------------------

TrueVector
Technology is flexible and efficient software platform for enabling high-performance, scalable and
robust Internet security technology. TrueVector, the basis for Zone Labs entire consumer and
enterprise product lines, makes it much easier for Zone Labs and their partners to secure Internet
access.

Check Points Products

Check
Point products are packaged in different ways and address various customer needs and deployment scenarios.
Most products run on a broad range of hardware platforms, running primarily on the following operating
systems: Nokia IPSO, Microsoft (Windows), Sun Microsystems (Solaris) and Linux. Check Point offers
a broad and integrated range of policy-based solutions for perimeter, internal and Web security:

| | Perimeter
      Security
| | ------------------------

Perimeter
  solutions are used to control the access between the customer internal network
  or computers and external network such as the internet. Check Point historically
  focused on VPN and firewalls which are the main building blocks for perimeter
  security. In June 2003, the Company introduced a new version of its flagship
  product named NG with Application Intelligence which integrates both network
  and application-level capabilities to deliver comprehensive attack protection
  and network security. The following products are marketed primarily as perimeter
  security products:

12

---

---

|Enterprise
      products:
|--------------------------
|                          

| | VPN-1 Pro
| | ---------
| |          

|Check
      Point VPN-1 Pro family of products integrates access control, authentication,
      and encryption to guarantee the security of network connections, the authenticity
      of local and remote users, and the privacy and integrity of data communications.
      It also includes FireWall-1 for effective security and efficient administration,
      using Check Points Stateful Inspection and Application Intelligence
      technologies. VPN-1 Pro is offered in multiple packages, depending on the
      size of the network protected, some packages include the SmartCenter/SmartCenter
      Pro management software and some include only the security gateway software.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | VPN-1 SecureClient & VPN-1 SecureRemote
| | ---------------------------------------
| |                                        

|VPN-1
      SecureClient and VPN-1 SecureRemote are VPN endpoints which provide secure
      connectivity from laptops and other mobile devices, work seamlessly with
      Check Points VPN-1 products and enable the set up of secure remote
      access as part of an overall security policy, including access control,
      user authentication and logging. VPN-1 SecuRemote licenses are included
      with VPN-1 gateway products at no cost.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|VPN-1
      SecureClient also includes personal firewall capabilities, secure configuration
      verification and streamlined software distribution and management and is
      licensed by the number of users.                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | VPN-1 Edge
| | ----------
| |           

|VPN-1
      Edge appliances provide secure connectivity for remote sites such as branch
      and retail sites. Integrating VPN-1/FireWall-1 technology, high availability
      and networking features, VPN-1 Edge appliances are managed centrally through
      SMART management, enabling the efficient setup of thousands of gateways.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                            

| | Security Management Solutions - SMART
| | -------------------------------------
| |                                      

|Check
      Points management solutions using SMART technology enable organizations
      of different sizes to define, deploy and enforce security policies consistently
      across multiple enforcement points. SMART Solutions for enterprises include
      the following product offerings:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                   

| | SmartCenter
| | -----------
| |            

|SmartCenter
      is Check Points comprehensive management product, comprised of an
      intuitive Dashboard that enables administrators to centrally
      define the VPN, firewall and QoS policies of a network, and a management
      server that stores and distributes these different elements of the security
      policy. This product provides administrators with enhanced understanding
      of distributed security deployments, and is combined with automatic policy
      distribution to deliver greater control, improved security and enhanced
      ease of use. It also includes the elements to collect, record and manage
      the network and security events as well as the SmartView Tracker to view
      and analyze those events.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | SmartView Family
| | ----------------
| |                 

|The
      SmartView product family includes the SmartView Tracker for viewing, searching
      and analyzing of network and security events recorded by the Companys
      products. SmartView Monitor enables real-time viewing of network and security
      traffic graphs by various criteria. SmartView Reporter enables the automatic
      creation of high-level reports demonstrating the network and security operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | SmartCenter Pro
| | ---------------
| |                

|SmartCenter
      Pro is an extension of our SmartCenter management products that bundles
      an additional set of management tools to provide a unique enterprise security
      management product. Included in SmartCenter Pro is the SmartLSM large scale
      management tool, SmartUpdate for distributed software version management
      and updates, SmartMap topological network view, Management Server High Availability,
      SmartDirectory for integration with LDAP directories and the SmartView Monitor
      for graphical reporting and analysis.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

---

|Products
      for medium businesses, small businesses and consumers:
|---------------------------------------------------------------------
|                                                                     

| | Check Point Express
| | -------------------
| |                    

|Check
      Point Express is a perimeter security product designed for mid-sized companies
      with up to 500 employees and multiple sites. It provides access control,
      network and application level protection, remote access and site-to-site
      VPN capabilities, along with an intuitive SMART management interface.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                    

| | Safe@Office
| | -----------
| |            

|Check
      Points Safe@Office product line is based on the Stateful Inspection
      technology found in VPN-1, and delivers VPN and firewall capabilities to
      small businesses, consumers, and the Managed Service Providers (MSPs). Safe@Office
      products can be managed individually using a web browser and can be provided
      with centralized management service via an MSP using the Security Management
      Portal (SMP.)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The
      recent acquisition of Zone Labs contributed the following product lines
      to the small business and consumers perimeter product offerings:                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | ZoneAlarm Pro
| | -------------
| |              

|ZoneAlarm
      Pro is designed to protect Internet-connected PCs at homes and small
      businesses with strong security, ease of use and online privacy protection.
      ZoneAlarm Pro includes ad blocking and cookie control capabilities as well
      as simple set-up for networks, including wireless networks. It also includes
      features which reduce the risk of online fraud and identity theft by guarding
      against the theft of personally-identifiable information, intellectual property
      and other confidential data.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | ZoneAlarm
| | ---------
| |          

|ZoneAlarm
      is designed to provide basic Internet security, ideal for the home PC. ZoneAlarm is
      free for personal and non-profit use.
|-----------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                               

| | IMsecure Pro
| | ------------
| |             

|IMsecure
      Pro is a consumer instant messaging security product for any program that
      accesses IM services such as AOL Instant Messenger, MSN Messenger and Yahoo!
      Messenger. IMsecure Pro is designed to maintain the privacy and security
      of IM conversations protect PCs and personal information from spammers
      and identity thieves, hackers and predators who exploit vulnerable IM connections.
      IMsecure Pro protects the PC transparently, regardless of service or client
      used, requiring no change to existing habits or software. Inbound and Outbound
      Threat Protection reduces exposure to malware and prevents eavesdropping,
      impersonation, and theft of personally-identifiable information, intellectual
      property and other confidential data stored on the PC.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | IMsecure
| | --------
| |         

|IMsecure
      is free for personal and non-profit use, offers basic inbound threat
      protection from buffer overflow attacks as well as Message Encryption for
      one IM account to protect instant messages from being monitored.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                          
|Products
      for service providers, data centers and large enterprises:                                                                                                                                                                 
|                                                                                                                                                                                                                                          

| | VPN-1/FireWall-1 VSX
| | --------------------
| |                     

|VPN-1®/FireWall-1®
      VSX is a high-speed, multi-policy security product designed for VLAN-enabled
      corporate networks, data centers and service provider POPs.  It
      uses the same, patented Stateful Inspection technology used in the VPN-1
      Pro.  By aggregating
      up to 250 individual security domains on a single platform, VPN-1/ FireWall-1
      VSX minimizes hardware investment.  VPN-1/FireWall-1
      VSX can be run on multiple gigabit platforms to deliver the required performance
      in high-bandwidth environments.  It
      is managed using Check Points SmartCenter products and Provider-1,
      delivering a unified management architecture that service providers and
      enterprises can also use to manage all their other Check Point enforcement
      points centrally.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

---

| | Provider-1
| | ----------
| |           

|Provider-1
      is a security management product designed to meet the unique challenges
      of service providers and large enterprises and is available in two editions
      designated for these two segments. Provider-1 consolidates customer security
      policies into a centralized policy management architecture that scales to
      support thousands of customers while minimizing investment in hardware and
      labor. For large enterprises, Provider-1 simplifies a complex security policy
      by segmenting it into more manageable sub-policies to match geographic,
      functional, or other logical groupings.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                 
| | --------------------------------
| | Security
      Management Portal
| |                                 

|The
      Security Management Portal (SMP) is a management product for service providers,
      which delivers outsourced Internet security to small businesses. Developed
      by SofaWare Technologies Ltd., a company affiliated to Check Point, the
      SMP enables service providers to create flexible service categories and
      to centrally manage tens of thousands of subscribers.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                  
|Product
      for wireless carriers:                                                                                                                                                                                                                                                                                                                                                              

| |                    
| | -------------------
| | FireWall-1
      GX
| |                    

|FireWall-1 GX provides security to GPRS- (2.5G) and UMTS- (3G) enabled
      wireless networks. FireWall-1 GX is designed to protect these wireless infrastructures
      from the threats of untrusted networks. With FireWall-1 GX, wireless network
      operators can offer seamless roaming to their data customers without exposing
      their network to potential security threats.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                 
|-----------------
|Internal Security

Historically,
  IT security organizations have focused on protecting the perimeter of their
  networks. However, many of todays security threats are introduced
  within the boundaries of the corporate internal network.

| | Check
      Point InterSpect
| | ----------------------------
| |                             

|Check Point InterSpect products were introduced in January 2004. They
      are sold as a Check Point appliance including the hardware and software.
      InterSpect internal security gateways segment internal network into multiple
      security zones, controlling traffic flow between those zones.
      InterSpect blocks the spread of certain attacks and worms, isolates computers
      that generate suspicious activity from communicating with other network
      segments and can also allow only certain types of traffic to different security
      zones.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The recent acquisition of Zone Labs contributed the following product
      line to the Companys Internal Security product offerings:                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|Zone Labs Integrity
|-------------------
|                   

|Zone Labs Integrity products are designed to enable enterprises to
      enforce and control security policy on desktops across the organization
      from a centralized management console, regardless of whether users are accessing
      the network remotely or from inside the enterprise network. Zone Labs Integrity
      reduces exposures to vulnerabilities by protecting individual endpoints
      and thus enabling deeper level of security enforcement.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Web Security                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Companies
are increasingly dependent on Web and Internet systems to run their businesses. As usage and dependence
of Web-based systems increases, companies are focusing on specialized protection for Web servers
and applications, and have a concentrated need to provide secure, unified access to these systems.

| | User Authority
| | --------------
| |               

|Check
      Points UserAuthority provides centralized administration and distributed
      enforcement of authorization access policies for Web applications, Check
      Point UserAuthority centralizes the administration and enforcement of user
      authentication in enterprise networks, uniformly implementing best-of-breed
      authentication products (PKI, tokens, LDAP, etc.) across enterprise networks.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                           
|Check
      Point intends to expand its web based security solutions and launch new
      web security technologies and products in 2004.                                                                                                                                                                                                                                                                                  

15

---

---

Sales and Marketing

Check
Point Sales and Marketing efforts are focused on expanding the installed base and increasing penetration
levels of end-user customers worldwide by leveraging multiple channels of distribution (channel partners):
distributors, resellers and Value Added Resellers (VARs), system integrators, and MSPs. The Company
sells its products to end-user customers primarily through numerous resellers and distributors worldwide.
The Company expects that it will continue to be dependent upon a limited number of distributors for
a significant portion of its revenues. In 2003, sales to the Companys five largest distributors
represented approximately 35% of the Companys revenues. The Companys agreements with
its channel partners are generally non-exclusive.

The
Company promotes its products in various ways, including its website, seminars and trade shows, print-media,
on-line advertising and software evaluation for a limited period.

The
Company has relationships with server and workstation vendors and appliance manufacturers, such as
Nokia, IBM, Hewlett-Packard Co., Dell Inc., Sun Microsystems Inc., Siemens AG, Crossbeam Systems
Inc., Nortel Networks Corp, and other suppliers of enterprise network hardware products. The Company
believes that strategic relationships can significantly contribute to the achievement of its sales
and marketing goals by integrating complementary technologies. Additionally, these hardware partners
provide primary support and training to their customers thereby enabling Check Point to concentrate
its support efforts on high-level technical assistance for its partners.

The
Company has derived substantially all of its revenues, and expects to continue to derive the vast
majority of its revenues in the foreseeable future, from sales of its network security products, packaged
and marketed mostly under the VPN-1 product family (which includes the firewall functionality), including
related software subscriptions, support and technical services and training programs. For information
concerning the Companys sales to geographic areas, see Item 5 - Operating and Financial
Review and Prospects.

The
Companys OPSEC Alliance program is focused on delivering integration and interoperability with
complimentary products and developing marketing relationships with partners to promote best-of-breed
security frameworks. OPSECs wide range of integration interfaces addresses all areas of a complete
Internet security architecture. Products that carry the OPSEC Certified and Secured
by Check Point seals have been tested to enable integration and interoperability. OPSEC partners
(currently over 325) include appliance companies like Nokia Corporation, Sun Microsystems, Inc. and
Nortel Networks Limited, application companies like Network Associates Inc., Computer Associates
International Inc., Trend Micro, Inc., RSA Security Inc. and VeriSign, Inc and system integrators
including Accenture, Computer Sciences Corp, Electronic Data Systems Corp, PriceWaterhouseCoopers,
and IBM Global Services. In addition, the Company maintains marketing relationships with other companies
to promote integrated products.

The
Company conducts a number of marketing programs to support the sale and distribution of its products.
These programs are designed to inform existing and potential partners and end-user customers about
the capabilities and benefits of the Companys products.

Customer Service and Support

The
Company operates a worldwide technical services organization, providing a wide range of technical,
customer, educational and professional services.

The
Companys channel partners generally provide the installation, training, maintenance and support
for their customers, with Check Point providing the high-level technical backup support. Alternatively
customers may elect to receive support directly from Check Point. As part of Check Points direct
market participation, the Company employs technical consultants and systems engineers who work closely
with its field and channel partners to assist with the pre-sales configuration, use and application
support.

At
the end of 2003 the Company has transitioned its subscription and support programs from being based
on single products into more comprehensive offerings that cover the customers entire installed
base. These programs offers lower cost to the customer and require full customer account coverage.
This change is likely to have an impact on the Companys future operating results.

The
  Company operates a worldwide 24-hour, 7-day call center, based primarily in
  Dallas, Texas.

16

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Research and Product Development

The
Company believes that its future success will depend upon its ability to enhance its existing products
and develop and introduce new products that address the increasingly sophisticated needs of end-users.
The Company works closely with existing and potential customers, distribution channels and major
resellers, which provide significant feedback for product development and innovation. The Companys
new product development efforts are focused on enhancements to its current family of products and
new products for perimeter, internal and web security and management. Although the Company expects
to develop its new products internally, it may, based upon timing and cost considerations, acquire
or license certain technologies or products from third parties.

Research
and development expenses for 2001, 2002 and 2003 were $33.2 million, $28.7 million and $29.3 million,
respectively. At December 31, 2003, the Company had 321 employees dedicated to research and
development activities and quality assurance, mostly located in Israel. With the recent acquisition
of Zone Labs the company now has an additional 91 such employees based in San Francisco, CA.

Competition

See Risk Factors  Competition in Item 3 - Key Information.

Proprietary Rights

The
Company relies primarily on a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. The Company seeks to protect
its software, documentation and other written materials under trade secret and copyright laws, which
afford only limited protection. The Company generally enters into confidentiality agreements with
employees, consultants, customers and potential customers and limits access to, and distribution
of, its proprietary information.

The
Company has patents pending worldwide and holds three U.S. patents. There can be no assurance that
the Companys efforts to protect its proprietary rights will be adequate or that the Companys
competitors will not independently develop similar technology.

**Organizational
  Structure**

The
  Company is organized under the laws of the State of Israel and wholly owns the
  subsidiaries specified below:

|NAME
      OF SUBSIDIARY                                       | COUNTRY
      OF INCORPORATION             
|-------------------------------------------------------------- | -------------------------------------------
|                                                               |                                            
|Check Point
      Software Technologies, Inc                   | United States
      of America (Delaware)  
|Check Point
      Software Technologies (Canada) Inc.          | Canada                                     
|Check Point
      Software Technologies (Japan) Ltd.           | Japan                                      
|Check Point
      Software Technologies (Singapore) PTE Ltd    | Singapore                                  
|Check Point
      Software Technologies (Netherlands) B.V.     | Netherlands                                
|Israel Check
      Point Software Technologies Ltd. China  (1) | China                                      
|Check Point
      Holding (Singapore) PTE Ltd.                 | Singapore                                  
|Check Point
      Holding (Singapore) PTE Ltd.  US Branch (2) | United States
      of America             
|Check Point
      Software Technologies Cayman Islands         | Cayman Islands                             
|Zanzibar
      Acquisition LLC  (3)                            | United States
      of America (California)

_______________________

(1) Branch of Check Point Software Technologies Ltd.

(2) Branch of Check Point Holding (Singapore) PTE Ltd.

(3) 100% owned
  by Check Point Software Technologies, Inc.

17

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Check Point Software Technologies (Netherlands) B.V. acts as a holding company and wholly owns the
following principal operating subsidiaries specified below:

|**NAME
      OF SUBSIDIARY**                                    | **COUNTRY
      OF INCORPORATION**
|--------------------------------------------------------------- | ----------------------------------
|                                                                |                                   
|Check
      Point Software Technologies (Australia) PTY Ltd.    | Australia                         
|Check
      Point Software Technologies SARL                    | France                            
|Check
      Point Software Technologies B.V                     | Netherlands                       
|Check
      Point Software Technologies (Italia) Srl (4)        | Italy                             
|Check
      Point Software Technologies (Switzerland) A.G       | Switzerland                       
|Check
      Point Software Technologies Norway A.S              | Norway                            
|Check
      Point Software Technologies (Spain) S.A             | Spain                             
|Check
      Point Software Technologies Mexico S.A. de C.V      | Mexico                            
|Check
      Point Software Technologies (Brazil) LTDA           | Brazil                            
|Check
      Point Software Technologies (UK) Ltd.               | United
      Kingdom              
|Check
      Point Software Technologies GmbH                    | Germany                           
|C.P.S.T.
      Sweden A.B                                       | Sweden                            
|Check
      Point Software Technologies (Denmark) ApS           | Denmark                           
|Check
      Point Software Technologies (Poland) Sp.z.o.o       | Poland                            
|Check
      Point Software Technologies (Czech Republic) s.r.o  | Czech
      Republic              
|Check
      Point Software Technologies (Hong Kong) Ltd.        | Hong
      Kong                   
|Check
      Point Software Technologies (Korea) Ltd.            | S.
      Korea                    
|Check
      Point Software Technologies (Finland) Oy            | Finland                           
|Check
      Point Yazilim Teknolojileri Pazarlama A.S. (5)      | Turkey                            
|Check
      Point Software Technologies (Belgium) S.A           | Belgium                           
|Check
      Point Software Technologies (Austria) GmbH          | Austria                           
|Check
      Point Software Technologies (India) Private Limited | India                             

_______________________

(4) 97% owned
  by Check Point Software Technologies (Netherlands) B.V and 3% owned by Check
  Point Software Technologies Ltd.

(5) 96% owned
  by Check Point Software Technologies (Netherlands) B.V, 1% owned by Check Point
  Software Technologies Ltd. and 3% owned in trust by the directors of Check Point
  Yazilim Teknolojileri Pazarlama A.S. on behalf of Check Point Software Technologies
  (Netherlands) B.V.

|NAME
      OF AFFILIATED COMPANY | COUNTRY
      OF INCORPORATION
|-------------------------------- | ------------------------------
|                                 |                               
|SofaWare Technologies
      Ltd. | Israel                        

Check
  Point has provided a convertible loan to SofaWare and has the right to convert
  this loan into 60% of the equity of SofaWare on a fully diluted basis exercisable
  until June 30, 2004. Check Point also holds warrants that allow it to further
  increase its holdings in SofaWare to approximately two-thirds of the equity
  of SofaWare on a fully diluted basis. Accordingly, the accounts of SofaWare
  are consolidated with the Companys financial statements.

18

---

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Plants, Property and Equipment

The
  Companys headquarters and research and development facilities are located
  in Ramat-Gan, Israel, near Tel-Aviv, where the Company leases approximately
  106,000 square feet of office space. These facilities are leased under leases
  that expire between 2005 and 2011, including renewal options. The Company also
  leases approximately a total of 104,000 square feet of office space in the United
  States. Of that, approximately 48,000 square feet of office space are leased
  for the US headquarters in Redwood City, California, and approximately 31,000
  square feet of office space for its technical services center in Dallas, Texas.
  These facilities are leased under leases for periods of up to five years. In
  addition, the Company leases regional office space in the United States, Latin
  America, Canada, Europe and Asia.

|**ITEM
      5.** | **OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS**
|----------------- | ------------------------------------------------------

The following discussion
and analysis is based on and should be read in conjunction with the Companys consolidated financial
statements, including the related notes, contained in Item 18 - Financial Statements.

Overview

Check
Point develops, markets and supports Internet security and VPN solutions for enterprise and high-end
networks, service providers, small and medium businesses and consumers. The Company delivers solutions
that enable secure, reliable and manageable communications over Internet Protocol networks, including
the Internet, intranets and extranets. The technology of Check Point is aimed to provide enterprises
with intelligent security solutions for their most critical information security challenges in three
distinct areas: Perimeter, Web and Internal networks. The capabilities of Check Point products can
be extended with the Open Platform for Security (OPSEC), enabling integration with leading hardware
appliances and third-party security software applications.

The
  Companys business is subject to the effects of general global economic
  conditions and in particular, market conditions in the IT industry and Internet
  security industry. During the past few years these economic and market conditions
  have reduced the high growth that the industry had previously experienced. As
  a result, the market value, financial results and capital spending levels of
  many of the Companys customers have been materially adversely affected.
  Notwithstanding recent improvement, if general economic and industry conditions
  fail to improve or deteriorate, demand for the Companys products could
  be adversely affected, as could the financial health of the Companys suppliers
  and distributors, and the Companys financial results may be adversely
  affected.

The
Company has derived most of its revenues, and expects to continue to derive the vast majority of
its revenues in the foreseeable future, from sales of its Internet security products, packaged and
marketed mostly under the VPN-1 brand, including related software subscriptions, support, technical
services and training programs.

No
distributor accounted for more than 10% of the Companys revenues in 2001. During 2002 and 2003
approximately 13% of the Companys revenues were derived from a single distributor.

The
following table sets forth, for the periods indicated, the percentage of total consolidated revenues
derived from sales into each of the regions identified in the table:

|                                     | Year Ended
      December 31,
|------------------------------------ | -----------------------------
|
|Americas                             |                              
|Europe, Middle
      East and Africa |                              
|Japan                                |                              
|Asia Pacific                         |                              

In

March 2004, the Company completed the acquisition of privately held Zone Labs for approximately
$114
million in cash and 5.3 million ordinary shares. The Company also assumed Zone Labs
outstanding
employee stock options which could convert to approximately 2.8 million Check Point
shares.

Zone
  Labs endpoint security products for enterprises, small businesses and
  consumers which include the Integrity, ZoneAlarm and IM secure product lines,
  are expected to further strengthen Check Points perimeter, internal and
  Web security portfolio, enabling the Company to deliver a comprehensive end-to-end
  Internet security to all types of customers.

19

---

---

The
Company expects to incur material charges, estimated to be between $70 million and $100 million,
in connection with the proposed acquisition of Zone Labs in 2004, mainly related to write-off of
in-process research and development and amortization of intangible assets and deferred compensation
expenses related to non-vested employee stock options assumed by the Company.

Critical Accounting Policies:

The Companys consolidated
financial statements are prepared in accordance with accounting principles generally accepted in
the United States (GAAP). These accounting principles require management to make certain
estimates, judgments and assumptions based upon information available at the time that they are made,
historical experience and various other factors that are believed to be reasonable under the circumstances.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
as of the date of the financial statements, as well as the reported amounts of revenues and expenses
during the periods presented.

In
  many cases, the accounting treatment of a particular transaction is specifically
  dictated by GAAP and does not require managements judgment in its application.
  There are also areas in which managements judgment in selecting among
  available alternatives would not produce a materially different result. The
  Companys management has reviewed these critical accounting policies and
  related disclosures with the Audit Committee. See Note 2 to the Companys
  Consolidated Financial Statements, which contain additional information regarding
  the Companys accounting policies and other disclosures required by GAAP.

Management believes the
significant accounting policies which affect managements more significant judgments and estimates
used in the preparation of the Companys consolidated financial statements and which are the
most critical to aid in fully understanding and evaluating the Companys reported financial
results include the following:

| |  | Revenue Recognition                                    
| | - | -------------------------------------------------------
| |  | Allowance
      for Doubtful Accounts and Sales Returns
| |  | Legal Contingencies                                    
| |  | Income taxes                                           
| |   |                                                        

| | Revenue
      Recognition
| | -------------------------

The
Company derives its revenues from three primary sources: (1) new software licenses (2) software subscriptions
and (3) services revenues, which include support, technical services and training programs. The basis
for new software license revenue recognition is substantially governed by the provisions of Statement
of Position No. 97-2, Software Revenue Recognition, issued by the American Institute
of Certified Public Accountants (SOP 97-2).

According
to SOP 97-2, the Company recognizes revenue when: (1) persuasive evidence of an arrangement for the
license of software exists; (2) the products are delivered or services are performed; (3) customer
payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and
(4) collection is probable.

Management
  considers arrangements regarding certain channel partners with payment terms
  extending beyond the Companys customary payment terms not to be fixed
  or determinable. If the fee is considered to be not fixed or determinable, revenue
  is deferred and recognized when payments become due from the channel partners,
  or are actually collected, provided that all other revenue recognition criteria
  have been met.

Software
  subscription, support, technical services and training program revenues included
  in multiple-element arrangements are deferred and either recognized on a straight-line
  basis over the term of the software subscription and support agreement or when
  services are performed. Revenues earned on software arrangements involving multiple-elements
  are allocated to each element based on the relative fair value of the element.
  The Vendor Specific Objective Evidence (VSOE) of fair value of the
  undelivered elements (software subscription, support, consulting services and
  training) is generally determined based on the price charged for the undelivered
  element when sold separately. In addition the Company has adopted Statement
  of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition
  with Respect to Certain Transactions, (SOP 98-9). SOP 98-9
  requires that revenue be recognized under the residual method when
  VSOE of Fair Value exists for all undelivered elements and VSOE does not exist
  for all of the delivered elements.

| | Allowance
      for Doubtful Accounts and Sales Returns
| | -------------------------------------------------------

The
  Company maintains an allowance for doubtful accounts for estimated losses, which
  may result from the inability of its channel partners to make required payments.
  Management exercises judgment as to its ability to collect outstanding receivables.
  Allowances for doubtful accounts are made based upon a specific review of all
  significant outstanding invoices. For those invoices not specifically reviewed,
  allowances for doubtful accounts are made based upon the age of the receivable.
  In determining the allowance, the Company analyzes its historical collection
  experience and current economic trends. If the historical data used to calculate
  the allowances for doubtful accounts do not reflect the future ability to collect
  outstanding receivables, additional allowances for doubtful accounts may be
  needed and the future results of operations could be materially affected.

20

---

---

The
Company also records a provision for estimated sales returns in the same period as the related revenues
are recorded. This estimate is based on historical sales returns, analysis of credit memo data and
other known factors. If the historical data used to calculate these estimates do not properly reflect
future returns, additional provision for sales returns may be required, and revenues in that period
could be adversely affected.

| | Legal
      Contingencies
| | -------------------------

As
discussed in Legal Proceedings in Item 8 - Financial Information, under the
caption Legal Proceedings, beginning on August 29, 2003, the Company received a number
of class action complaints, which were later consolidated by the court into one action. On January
14, 2004, the appointed lead plaintiff filed a consolidated amended complaint. Management believes
that applicable insurance as well as a provision in the financial statements as of December 31, 2003,
are adequate to cover probable costs arising from this matter. Due to the uncertainties related to
this matter, the provision is based on the best information available at the time the accrual was
made. As additional information becomes available, management will reassess the potential liability
related to the pending litigation and may revise its estimate of the probable cost of this litigation.
Such revisions in the estimate of the probable cost could have a material impact on the Companys
future results of operations and financial position.

| | Income
      taxes
| | ------------------

The
Company operates within multiple taxing jurisdictions and is subject to audits in these jurisdictions.
These audits can involve complex issues, which may require an extended period of time to resolve.
In managements opinion, adequate provisions for income taxes have been made for all years.
Although management believes that its estimates are reasonable, no assurance can be given that the
final tax outcome of these issues will not be different than those, which are reflected in the Companys
historical income tax provisions. Such differences could have a material effect on the Companys
income tax provision and net income in the period in which such outcome occurs.

Results of Operations

The
following table presents, for the periods indicated, information concerning the Companys results
of operations:

|                                       | Year Ended
      December 31,
|-------------------------------------- | -----------------------------
|
|
|Revenues:                              |                              
|Products
      and licenses            |                              
|Software
      subscriptions           |                              
|Support,
      training and consulting |                              
|                                       |                              
|Total revenues                         |                              
|                                       |                              
|Operating
      expenses:              |                              
|Cost
      of revenues                 |                              
|Research
      and development         |                              
|Selling
      and marketing            |                              
|General
      and administrative       |                              
|                                       |                              
|Total
      operating expenses         |                              
|                                       |                              
|Operating
      income                 |                              
|Financial
      income, net            |                              
|                                       |                              
|Income before
      taxes on income    |                              
|Taxes on
      income                  |                              
|                                       |                              
|Net income                             |                              
|                                       |                              

21

---

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The
following table presents, for the periods indicated, information concerning the Companys results
of operations as a percentage of the Companys revenues:

|                                       | Year Ended
      December 31,
|-------------------------------------- | -----------------------------
|
|
|Revenues:                              |                              
|Products
      and licenses            |                              
|Software
      subscriptions           |                              
|Support,
      training and consulting |                              
|                                       |                              
|Total revenues                         |                              
|                                       |                              
|Operating
      expenses:             
|Cost
      of revenues                 |                              
|Research
      and development         |                              
|Selling
      and marketing            |                              
|General
      and administrative       |                              
|                                       |                              
|Total operating
      expenses         |                              
|                                       |                              
|Operating
      income                 |                              
|Financial
      income, net            |                              
|                                       |                              
|Income before
      taxes on income    |                              
|Taxes on
      income                  |                              
|                                       |                              
|Net income                             |                              
|                                       |                              

| | Revenues
| | --------

The
Companys revenues are derived from the sale of software products and related software subscriptions,
support contracts, training and consulting. The Companys revenues were $527.6 million, $427.0
million and $432.6 million in 2001, 2002 and 2003, respectively. In 2002, the decrease in revenues
was primarily a result of lower spending by the Companys customers, much of which was attributable
to the global economic slow down, continuous weakness in the service providers sector and a more
competitive market place. In 2003, we continued to experience a gradual shift of revenues from products
and licenses to software subscription, while total revenue remained at the same level. The increase
in software subscription revenues is attributed mainly to the introduction of a new subscription
and support program in early 2003 and the increase of our install base. Management anticipates that
revenues in 2004 will increase both due to internal growth and the effect of the recent acquisition
of Zone Labs. However, there can be no assurance that revenues will grow in 2004 due to several factors,
any of which could have a material adverse affect on revenues, including the uncertainty of the global
economic conditions, the Companys ability to integrate the technology and operations of Zone
Labs, the market acceptance of new products and the level of products and price competition.

| | Cost of
      revenues
| | ----------------------

The
Companys cost of revenues is comprised of the cost of post-sale customer support, training
and consulting, cost of freight, software and hardware production, manuals, packaging and license
fees. Cost of revenues was $26.6 million, $20.7 million and $18.9 million for 2001, 2002 and 2003,
respectively. In 2002, the decrease in cost of revenues was mainly attributable to a decrease in
license payments to third parties and an increase in the Companys operational efficiency. In
2003, cost of sales has continued to decrease due to the further improvement of operational efficiencies.
Management anticipates that cost of revenues will increase in 2004 in line with an expected growth
in revenues derived from products incorporating hardware.

| | Research
      and development
| | ------------------------------

Research
  and development expenses consist primarily of salaries and other related expenses
  for research and development personnel, as well as the cost of facilities and
  depreciation of capital equipment. Research and development expenses were $33.2
  million, $28.7 million and $29.3 million in 2001, 2002 and 2003, respectively,
  representing 6%, 7% and 7% of revenues, respectively. In 2002, the decrease
  related both to lower compensation expense and limited amounts being spent on
  special projects. The increase in 2003 related mainly to the increase in the
  number of research and development employed by the Company. Management anticipates
  that research and development expenses in 2004 will increase mainly due to the
  inclusion of Zone Labs as a new division of the Company and expected increase
  in compensation expense.

22

---

---

| | Selling
      and marketing
| | ---------------------------

Selling
and marketing expenses consist primarily of salaries, commissions, advertising, trade shows, travel
and other related expenses. Selling and marketing expenses were $ 109.1 million, $104.6 million and
$111.0 million in 2001, 2002 and 2003, respectively, representing 21%, 24% and 26% of revenues, respectively.
In 2002, the decrease was mainly due to lower marketing activities, offset by an increase in headcount-related
sales expenses, which derived from the expansion of Check Points sales force to new countries.
In 2003, the increase resulted mostly from higher compensation related expenses and the effect of
the strong position of the Euro. Management anticipates that selling and marketing expenses in 2004
will increase due to the inclusion of Zone Labs financial results, increased investment in
marketing activities, and an expected increase in compensation expense.

| | General
      and administrative
| | --------------------------------

General
and administrative expenses consist primarily of salaries and headcount related expenses, professional
fees, insurance costs and other. General and administrative expenses were $22.0 million, $18.0 million
and $17.6 million in 2001, 2002 and 2003, respectively, representing 4% of revenues in all years.
The decrease in 2002 and 2003 compared to 2001 was mainly due to lower non-headcount related expenses.
Management anticipates that in 2004, general and administrative expenses will increase both due to
market increase in insurance costs and the inclusion of Zone Labs financial results.

| | Operating
      Margin
| | ----------------------

The
Company may experience future decline in operating margins from historical levels due to the following
reasons: the inclusion of Zone Labs as a new division of the company, including the post acquisition
charges of in-process research and development and  amortization of intangible assets and
deferred stock based compensation expense; increasing competition and pricing pressure; additional
investments in the further development and expansion of the Companys selling and marketing
organization; additional expansion of the research and development organization and the expected
growth in revenues derived from products incorporating hardware. The amount and timing of the abovementioned
additional expenses are likely to result in fluctuations in operating margins

| | Financial
      income, net
| | ---------------------------

Financial
income, net consists primarily of interest earned on cash and cash equivalents, short and long term
deposits and marketable securities. Financial income, net was $44.8 million, $49.3 million, and $43.5
million in 2001, 2002 and 2003, respectively. The increase in 2002 was primarily attributable to
the increase in the Companys cash and cash equivalents, short and long-term deposits and marketable
securities, all of which grew as a result of the Companys cash flow from its operations. The
decrease in 2003 was due to continuous decrease in interest rates during 2003, despite the increase
in total cash and investments. Interest income is heavily dependent on prevailing U.S. interest rates.

Taxes on Income

The
Companys effective tax rate was 15.6%, 16.2% and 18.5% in 2001, 2002 and 2003, respectively.
These relatively low tax rates were mainly achieved as a result of the Approved Enterprise status
granted to the production facilities in Israel. We expect that our effective tax rate in 2004 will
not increase significantly compared to our 2003 effective tax rate.

Under
the provisions of the Israeli law, the Company has elected to enjoy the alternative package of tax
benefits relating to these facilities, which grant tax exemptions and a reduction of tax rates. Accordingly,
the Companys income from its Approved Enterprise is tax-exempt for a period of two years and
is subject to a reduced corporate tax rate of 10% to 25% for an additional period of five to eight
years, based on the percentage of foreign investment. The tax benefits granted are scheduled to expire
gradually from 2005 through 2013. The period of tax benefits, for each capital investment plan, is
limited to the earlier of twelve years from completion of the investment under the approved plan
or fourteen years from receipt of approval.

Out
of the Companys retained earnings as of December 31, 2003 approximately $ 461 million
were tax-exempt. If such retained tax-exempt income is distributed in a manner other than upon the
complete liquidation of the Company, it would be taxed at the reduced corporate tax rate applicable
to such profits (10% to 25%) and an income tax liability of up to approximately $ 115 million
would be incurred. The Company currently intends to reinvest the amount of its tax-exempt income
and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been
provided with respect to this income. Distribution of other earnings derived from the Companys
status as an Approved Enterprise which were previously taxed at reduced tax rates, would not result
in additional tax to the Company.

If
  the Company fails to meet the requirements of an Approved Enterprise in the
  future, the Company could be subject to the statutory Israeli corporate tax
  rate of 36% and could be required to refund tax benefits already received plus
  linkage adjustment to the Israeli consumer price index and interest. In addition,
  the law and regulations prescribing the benefits provide for an expiration date
  for the grant of new benefits. The expiration date has been extended several
  times in the past. The expiration date currently in effect is June 30, 2004
  (which may be extended by ministerial decision until December 31, 2004). There
  can be no assurance that new benefits will be available after June 30, 2004,
  or that existing benefits will be continued in the future at their current levels
  or at any level.

23

---

---

See
Israeli Taxation, Foreign Exchange Regulation and Investment Programs in Item 10
- Additional Information.

Quarterly Results of Operations

The
following table sets forth certain unaudited consolidated statements of income data for each of the
quarters in 2002 and 2003, as well as the percentage of the Companys revenues represented by
each item. The unaudited consolidated financial statements have been prepared on the same basis as
the audited consolidated financial statements contained herein and include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a fair presentation
of such information, when read in conjunction with the Companys consolidated financial statements
and notes thereto appearing elsewhere in this annual report.

|                                                                 | Year Ended
      December 31, 2002 | Year Ended
      December 31, 2003
|---------------------------------------------------------------- | ---------------------------------- | ----------------------------------
|
|
|
|
|Revenues                                                         | $                                  | 104,583                           
|                                                                 |                                    |                                   
|Operating
      expenses:                                       
|Cost
      of revenues                                           |                                    | 4,615                             
|Research
      and development                                   |                                    | 7,399                             
|Selling
      and marketing                                      |                                    | 25,033                            
|General
      and administrative                                 |                                    | 4,837                             
|                                                                 |                                    |                                   
|Total operating
      expenses                                   |                                    | 41,884                            
|                                                                 |                                    |                                   
|Operating
      income                                           |                                    | 62,699                            
|Financial
      income, net                                      |                                    | 12,227                            
|                                                                 |                                    |                                   
|Income before
      taxes on income                              |                                    | 74,926                            
|Taxes on
      income                                            |                                    | 11,390                            
|                                                                 |                                    |                                   
|Net Income                                                       | $                                  | 63,536                            
|                                                                 |                                    |                                   
|Basic net
      earnings per share                               | $                                  | 0.26                              
|Shares used
      in computing basic netearnings
      per share |                                    | 243,179                           
|Diluted net
      earnings per share                             | $                                  | 0.25                              
|Shares
      used in computing diluted net earnings per share    |                                    | 259,042                           

As
a Percentage of Revenues:



|                                    | Year Ended
      December 31, 2002 | Year Ended
      December 31, 2003
|----------------------------------- | ---------------------------------- | ----------------------------------
|
|
|
|Revenues                            |                                    | 100                               
|                                    |                                    |                                   
|Operating
      expenses:          
|Cost
      of revenues              |                                    | 4                                 
|Research
      and development      |                                    | 7                                 
|Selling
      and marketing         |                                    | 24                                
|General
      and administrative    |                                    | 5                                 
|                                    |                                    |                                   
|Total operating
      expenses      |                                    | 40                                
|                                    |                                    |                                   
|Operating
      income              |                                    | 60                                
|Financial
      income, net         |                                    | 12                                
|                                    |                                    |                                   
|Income before
      taxes on income |                                    | 72                                
|Taxes on
      income               |                                    | 11                                
|                                    |                                    |                                   
|Net Income                          |                                    | 61                                
|                                    |                                    |                                   

24

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The
Companys future revenues and operating results are uncertain and may fluctuate from quarter
to quarter and from year to year due to a combination of factors, including the timing of new product
releases and acceptance of new products, the demand for the Companys products, the volume and
timing of orders and the ability to fulfill orders, the level of product and price competition, the
expansion of the Companys selling and marketing ­organizations, the Companys ability
to develop new and enhanced products and control costs, the Companys ability to attract and
retain key technical, sales and managerial employees, the mix of distribution channels through which
products are sold, the mix of products and services sold, the growth in the acceptance of and activity
on the Internet and World Wide Web, the growth of intranets, seasonal trends in customer purchasing,
customer capital spending budgets, foreign currency exchange rates and general economic factors and
potential acquisitions. The Companys revenues are subject to seasonal fluctuations related
to the slowdown in spending activities in Europe for the quarter ending September 30 and the
increased activity related to the year-end purchasing cycles of many end-users of the Companys
products. The Company believes that it will continue to encounter quarter-to-quarter seasonality
that could result in proportionately lower sales in the quarters ending September 30 and March 31
relative to sales in the quarters ending June 30 and December 31, respectively.

The
Companys expense levels are based, in part, on expectations as to future revenues. If revenue
levels are below expectations, operating results are likely to be adversely affected, since most
of the Companys expenses are not variable. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. Due to all of the foregoing factors, it is likely that
in some future quarter the Companys operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Companys ordinary shares would
likely be materially adversely affected.

Liquidity and Capital Resources

The
Company has financed its operations through cash generated from operations. Cash and cash equivalents
and short term investments were $1,136.3 million, and long term interest bearing investments were
$466.4 million, totaling $ 1,602.7 million as of December 31, 2003, as compared with cash and
cash equivalents and short term investments of $785.9 million and long term interest bearing investments
of $528.9 million totaling $1,314.8 million as of December 31, 2002. At the end of 2002, the Company
established a wholly owned subsidiary in Singapore in order to manage its financial assets. This
subsidiary currently holds the majority of the Companys investments. The Company generated
net cash from operations of $347.2 million, $283.9 million and $290.9 million in 2001, 2002 and 2003,
respectively. Net cash from operations for 2003 and 2002 consisted primarily of net income plus increases
in deferred revenues, employees and payroll accruals, accrued expenses and other liabilities, tax
benefits related to exercise of stock options and depreciation and amortization. Net cash from operations
for 2001 consisted primarily of net income plus increases in accrued expenses and other liabilities,
depreciation and amortization and decrease in trade receivables, offset by decreases in deferred
revenues and employees and payroll accruals.

The
Companys capital expenditures amounted to approximately $9.7 million, $4.6 million, and $3.0
million in 2001, 2002 and 2003, respectively. Currently, the Companys capital expenditures
consist primarily of computer equipment and software for the Companys research and development
and technical service organization efforts as well as increasing infrastructure to enable operation
expansion. The Company does not anticipate any change to this policy in the foreseeable future. As
of December 31, 2003, the Company had no material commitments for capital expenditures.

Net
cash provided by financing activities was approximately $36.3 million, $14.7 million and $17.7
million in 2001, 2002 and 2003, respectively, primarily as a result of stock options exercised. Excess
cash is invested in marketable securities and bank deposits of varying maturities, depending on projected
cash needs for operations, capital purchases and other business purposes.

The
Companys principal sources of liquidity consist of its current assets and long-term investments
(which aggregated $1,602.7 million as of December 31, 2003), its cash flow from operations and its
financial income, net. The Company believes that these sources of liquidity will be sufficient to
satisfy the Companys capital requirements for the foreseeable future.

In
October 2003, the Company announced that its Board of Directors has authorized the repurchase of
up to $200 million of its outstanding ordinary shares in the open market or through privately negotiated
transactions. Under the repurchase program, share purchases may be made from time to time depending
on market conditions, share price, trading volume and other factors and will be funded from available
working capital. The repurchase program has no time limit and may be suspended from time to time
or discontinued. As of March 29, 2004, no shares had been repurchased under the plan.

In
March 2004 the Company completed the acquisition of privately held Zone Labs for approximately $114
million in cash and 5.3 million ordinary shares.

**Off-Balance Sheet
  Arrangements**

We
  are not a party to any material off-balance sheet arrangements. In addition,
  we have no unconsolidated special purpose financing or partnership entities
  that are likely to create material contingent obligations.

25

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Disclosure of Contractual Obligations

The
Company does not have material contractual obligations and commercial commitments except for the
lease of its facilities as of December 31, 2003. The lease commitments due within one year amount
to $5.2 million. Lease commitments due between one to five years amount to $6.2 million (see also
Note 7a to the financial statements).

|**ITEM
      6.** | **DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES**
|----------------- | ----------------------------------------------------

The
directors and executive officers of the Company as of December 31, 2003 were as follows:

|Name                     | Position                                                  
|------------------------ | ----------------------------------------------------------
|                         |                                                           
|Gil Shwed                | Chief Executive
      Officer and Chairman of the Board   
|Marius Nacht             | Senior Vice President
      and Vice Chairman of the Board
|Jerry Ungerman           | President                                                 
|Eyal Desheh              | Chief Financial
      Officer                             
|                         |                                                           
|Irwin Federman (1)(2)(3) | Director                                                  
|David Rubner 
      (2)  | Director                                                  
|Ray Rothrock (1)(2)(3)   | Director                                                  
|Alex Vieux               | Director                                                  
|Tal Shavit               | Director                                                  

| | ___________                                                                                       
| | --------------------------------------------------------------------------------------------------
|
| | (1)    Member
      of Compensation Committee                                                     
| | (2)    Member
      of Audit Committee                                                            
| | (3)    Outside
      Director, see Outside and Independent Directors below in this
      Item 6.

Gil
Shwed, a co-founder of the Company, is Chairman of the Board of the Company, a position he has held
since 1998, and is also the Companys Chief Executive Officer and a Director of the Company,
both positions he has held since the Companys inception in 1993. Mr. Shwed also served as President
of the Company from its inception until 2001. Mr. Shwed is also a Director of Backweb Technologies
Ltd.

Marius
Nacht, a co-founder of the Company, has served as the Companys Vice Chairman of the Board since
2001 and has also been the Companys Senior Vice President since 1999. Mr. Nacht has served
as a director of the Company since its inception in 1993. Mr. Nacht received a Masters degree in
Electrical Engineering and Communication Systems from Tel Aviv University, as well as a B.S. Cum
Laude in Physics and Mathematics from Hebrew University of Jerusalem.

Jerry
Ungerman was appointed President of the Company in 2001 and has global responsibility for sales,
marketing, business development and product management. He served as Executive Vice President from
1998 until 2000. He began his career with IBM in 1967 and from 1971 to 1998, Mr. Ungerman held a
number of senior management positions with Hitachi Data Systems Corp., a provider of computer networking
and data storage solutions for computing environments. Mr. Ungerman holds a B.S.B. in business from
the University of Minnesota.

Eyal
Desheh has been Chief Financial Officer of the Company since 2000. From 1996 until 2000 he was Chief
Financial Officer for Scitex Corporation Ltd., a company engaged in digital imaging for graphics
communications, where he was responsible for all the major finance functions, investor relations,
risk management, mergers and acquisitions and legal affairs. Before joining Scitex, he served as
Vice President for business development and strategy at Bezeq, The Israeli Telecommunications Corp.
Ltd., Deputy Chief Financial Officer of Teva Pharmaceuticals Ltd., Chief Executive Officer of H.L.
Financial Services Ltd. and numerous positions in Bank Hapoalim. Mr. Desheh holds a B.A. in Economics
and an M.B.A in Finance, both from Hebrew University of Jerusalem.

Irwin
Federman has served as a director of the Company since 1995. Mr. Federman has been a General Partner
of U.S. Venture Partners, a venture capital firm, since 1990. Mr. Federman is a director of Centillium
Communications, Inc., Nuance Communications, Inc., SanDisk Corp., and a number of private companies.
Mr. Federman received a B.S. in Economics from Brooklyn College.

Ray
  Rothrock has served as a director of the Company since 1995. Mr. Rothrock has
  been a member of Venrock Associates, a venture capital firm, since 1988 and
  a General Partner of Venrock Associates since 1995. Mr. Rothrock is also a director
  of a number of private companies. Mr. Rothrock received a B.S. in engineering
  from Texas A&M University, an M.S. from the Massachusetts Institute of Technology
  and an M.B.A. from the Harvard Business School.

26

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David
Rubner has served as a director of the Company since 1999. Mr. Rubner is Chairman and Chief Executive
Officer of Rubner Technology Ventures Ltd., a venture capital firm, and is a general partner in Hyperion
Israel Advisors Ltd., a venture capital firm. Prior to starting this company, Mr. Rubner served as
President and Chief Executive Officer of ECI Telecommunications Ltd. Prior to this appointment, he
held various management positions in ECI Telecom. Mr. Rubner holds a B.S. degree in engineering from
Queen Mary College, University of London, and an M.S. degree from Carnegie Mellon University. Mr.
Rubner was a recipient of the Industry Prize in 1995 and serves on the boards of directors of a number
of companies, and is a member of the Board of Trustees of Bar Ilan University and Shaare Zedek hospital.

Alex
Vieux has served as a director of the Company since 1998. Mr. Vieux is Chairman, Chief Executive
Officer and founder of DASAR Brothers, Inc., which he founded in 1990 and the owner of ETRE, the
European Technology Roundtable Exhibition. He is a member of the board of several public and private
technology companies including BVRP software, Cibox, Commerce One, Kyriba, madge, Thrunet and White
Pajama. Mr. Vieux has served as a senior advisor to both government and industry and was lately named,
for the second year in a row, one of the most influential people in the European technology community.
Mr. Vieux is currently a visiting professor at the French University Paris Dauphine, where he is
teaching telecommunications in the United States. Mr. Vieux is a graduate of the Institut dEtudes
Politiques in Paris and HEC. He also holds a law degree from the Université de Paris II-Assas
and an M.B.A. from Stanford University, where he was a Fulbright Scholar.

Dr.
Tal Shavit has served as a director of the Company since 2002. Dr. Shavit is an organizational consultant
specializing in international collaboration between Israeli and American companies, consulting in
the management of cultural differences in order to forge effective collaboration. Her focus is on
consultation to R&D upgrade in both Israeli companies and in American companies with Israeli-based
R&D centers. Her work with leading management teams includes a defining of organizational culture
as the engine of the companys activities. She consults to companies undergoing structural change
and a redefining of management roles in order to meet market changes.

Except
for Messrs. Shwed and Nacht, as of February 16, 2004, none of the directors or executive officers
of the Company owned more than one percent of the outstanding ordinary shares. For information as
to the share ownership of Messrs. Shwed, Nacht and Kramer, see Item 7  Major Shareholders
and Related Party Transactions.

Board Composition

The
Companys Articles of Association provide for a Board consisting of not less than six nor more
than twelve members. Each director (other than an outside director, as explained below) is elected
to serve until the next annual general meeting of shareholders and until his or her successor has
been elected. Each officer is elected by and serves at the discretion of the Board of Directors.
Each of the Companys officers and directors, other than non-employee directors, devotes substantially
all of his business time to the affairs of the Company. There are no family relationships among any
of the directors, officers or key employees of the Company.

The
Articles of Association of the Company provide that any director may, by written notice to the Company,
appoint another person to serve as an alternate director and may cancel such appointment. Any person,
other than a person who is already a director or an alternate director, may act as an alternate director.
The term of appointment of an alternate director may be for one meeting of the Board or for a specified
period or until notice is given of the cancellation of the appointment. To the Companys knowledge,
no director currently intends to appoint any other person as an alternate director.

The
Companys Articles of Association provide that the Board of Directors may delegate all of its
powers to committees of the Board of Directors, as it deems appropriate, subject to the provisions
of Israeli law. The Board of Directors has appointed a Compensation Committee and an Audit Committee.

**Outside and Independent
  Directors**

In
accordance with the Israeli Companies Law and the regulations promulgated under the Companies Law,
the Company must have two outside directors. The outside directors must meet certain statutory requirements
of independence. The term of office of an outside director is three years and may be extended for
one additional three-year term. An outside director can be removed from office only under very limited
circumstances. Both of the outside directors must serve on the Companys statutory audit committee,
and at least one outside director must serve on each committee of the Board of Directors. The Company
has appointed Irwin Federman and Ray Rothrock as its outside directors under the Israeli Companies Law.

In
  addition, the rules of the NASDAQ National Market currently applicable to foreign
  private issuers such as the Company require the Company to have at least three
  independent directors as that term is defined under NASDAQ National Market rules.
  The current independent directors of the Company under the rules of the NASDAQ
  National Market are Irwin Federman, Ray Rothrock and David Rubner.

27

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Audit Committee

The
Israeli Companies Law requires public companies to appoint an audit committee. The responsibilities
of the audit committee include identifying irregularities in the management of the companys
business and approving related party transactions as required by law. An audit committee must consist
of at least three directors, including both of the outside directors. The Chairman of the Board of
Directors, any director employed by or otherwise providing services to the company, and a controlling
shareholder or any relative of a controlling shareholder may not be a member of the audit committee.
An audit committee may not approve an action or a transaction with a controlling shareholder, or
with an office holder, unless at the time of approval two outside directors are serving as members
of the audit committee and at least one of the outside directors was present at the meeting in which
an approval was granted. In addition, the rules of the NASDAQ National Market currently applicable
to foreign private issuers such as the Company require the Company to establish an audit committee
of at least three members, comprised solely of independent directors. The responsibilities of the
audit committee under the NASDAQ National Market rules include the selection and evaluation of the
Companys outside auditors. The Companys Audit Committee satisfies both the Israeli law
and the NASDAQ National Market requirements. The current members of the Companys audit committee
are Irwin Federman, Ray Rothrock and David Rubner. In 2003 the audit committee has adopted an Audit
Committee Charter as required by the NASD.

Compensation Committee

The
Companys Compensation Committee reviews and, as required, approves policies under which compensation
is awarded to the Companys executive officers and key managers and oversees the administration
of the Companys executive compensation programs, including the Companys stock option
plans. The current members of this committee are Irwin Federman and Ray Rothrock.

Compensation of Directors and Officers

The
aggregate accrued compensation of all 9 persons as a group who served in the capacity of director
or executive officer during the year ended December 31, 2003 was approximately U.S. $3.3 million.
This does not include amounts expended by the Company for business travel, professional and business
association dues and expenses reimbursed to officers. Except for severance payments mandated by Israeli
law for all employees employed in Israel, the Company does not have any agreements with those directors
who are also officers of the Company providing for benefits upon termination of employment. The Companys
directors who are officers will not receive compensation for serving as directors in 2004; the Companys
directors who are not officers will receive compensation for serving as directors in 2004. From time
to time, the Company grants options under its stock option plans (described below) to its executive
officers and directors. As of February 16, 2004, the Companys executive officers and directors
held options to purchase an aggregate of 17,174,750 shares under the Companys stock option
plans. The exercise prices of these options range between $2.65 and $79.79, and their expiration
dates range between June 2005 and August 2010. Other than as set forth in the share ownership table
under Item 7  Major Shareholders and Related Party Transactions, none of our directors
and officers holds more than 1% of the outstanding shares of the Company.

Stock Options

| | Israel
      Stock Option Plan
| | ------------------------------

The
  Companys 1996 Israel Stock Option Plan (the 1996 Israel Plan)
  was adopted by the Board of Directors on April 12, 1996 and subsequently restated,
  most recently in February 2003. The 1996 Israel Plan authorizes the issuance
  of up to 76,229,310 ordinary shares. As of February 17, 2004, 13,349,939 ordinary
  shares had been issued under the 1996 Israel Plan, options to purchase
  21,321,788 ordinary shares were outstanding (including options incorporated
  from previous grants to employees in Israel prior to the adoption of the 1996 Israel
  Plan) and 41,557,583 shares remained available for future grant. The options
  exercise prices range between $2.65 and $86.54. The 1996 Israel Plan is administered
  by the Board of Directors, which has broad discretion, subject to certain limitations,
  to determine the persons entitled to receive options, the terms and conditions
  on which options are granted and the number of shares subject to each grant.
  Options under the 1996 Israel Plan are issued to Israeli employees, directors,
  consultants, advisers and service providers of the Company. In addition, options
  are issued under subsidiary plans of the 1996 Israel Plan, that are tailored
  for various other jurisdictions worldwide, to employees of the Companys
  subsidiaries in other countries outside the United States. In accordance with
  the terms and conditions imposed by Section 102 of the Israel Income Tax
  Ordinance, grantees that receive options under the 1996 Israel Plan are
  afforded certain tax benefits (excluding grantees who previously received options
  that were incorporated upon the adoption of the 1996 Israel Plan, and excluding
  controlling shareholders of the Company or those who are not employees or directors
  of the Company). The Company has elected the benefits available under the capital
  gains alternative. There are various conditions that must be met in order
  to qualify for these benefits, including registration of the options in the
  name of a trustee (the Trustee) for each of the employees who is
  granted options. Each option, and any ordinary shares acquired upon the exercise
  of the option, must be held by the Trustee for a period commencing on the date
  of grant and ending no earlier than 24 months after the end of the tax year
  in which the option was granted and deposited in trust with the Trustee. The
  1996 Israel Plan provides for the options granted under the Plan to have
  a maximum exercise period of seven years from the date of grant. Options granted
  under the 1996 Israel plan are generally exercisable over five years. Options
  that are not exercised will become available for further grant by the Board
  under the 1996 Israel Plan.

28

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| | United
      States Stock Option Plan
| | -------------------------------------

The
Companys 1996 United States Stock Option Plan (the 1996 U.S. Plan) was adopted
by the Board of Directors on April 12, 1996 and was approved by the shareholders as the successor
to the Companys 1995 Stock Option Plan (the 1995 Plan). The 1996 U.S. Plan authorizes
the issuance of up to 107,443,964 ordinary shares. As of February 17, 2004, 36,141,516 ordinary shares
have been issued under the 1996 U.S. Plan, options to purchase 7,079,890 ordinary shares were outstanding
(including options incorporated from the 1995 Plan) and options to purchase 64,222,559 ordinary shares
remained available for future grant. The options exercise prices range between $2.65 and $86.54.
Ordinary shares subject to outstanding options, including options granted under the 1995 Plan, which
expire or terminate prior to exercise, would be available for future issuance under the 1996 U.S.
Plan. Options granted under the 1996 U.S. plan are generally exercisable over four years.

Under
the 1996 U.S. Plan, employees (including officers) and independent consultants may, at the discretion
of the plan administrator, be granted options to purchase ordinary shares at an exercise price not
less than 85% of the fair market value of such shares on the grant date (the Company does not intend
to issue options at an exercise price of less than fair market value). Non-employee members of the
Board of Directors will be eligible solely for automatic option grants under the 1996 U.S. Plan.

The
Compensation Committee of the Board administers the 1996 U.S. Plan. The Compensation Committee has
complete discretion to determine which eligible individuals are to receive option grants, the number
of shares subject to each such grant, the status of any granted option as either an incentive option
or a non-statutory option under U.S. Federal tax laws, the vesting schedule to be in effect for each
option grant and the maximum term for which each granted option is to remain outstanding. In no event,
however, may any one participant in the 1996 U.S. Plan acquire ordinary shares under the 1996 U.S.
Plan in excess of 3,000,000 shares, exclusive of any option grants received prior to January 1, 1996.

The
exercise price for options granted under the 1996 U.S. Plan may be paid in cash. Options may also
be exercised on a cashless basis through the same-day sale of the purchased shares. The Compensation
Committee may also permit the optionee to pay the exercise price through a promissory note payable
in installments over a period of years. The amount financed may include any U.S. Federal or state
income and employment taxes incurred by reason of the option exercise.

The
Compensation Committee has the authority to effect, from time to time, the cancellation of outstanding
options under the 1996 U.S. Plan in return for the grant of new options for the same or a different
number of option shares with an exercise price per share based upon the fair market value of the
ordinary shares on the new grant date.

In
the event the Company is acquired by merger, consolidation or asset sale, the ordinary shares subject
to each option outstanding at the time under the 1996 U.S. Plan will terminate to the extent not
assumed by the acquiring entity. The Compensation Committee also has discretion to provide for the
acceleration of one or more outstanding options under the 1996 U.S. Plan and the vesting of shares
subject to outstanding options upon the occurrence of certain hostile tender offers.

The
Board may amend or modify the 1996 U.S. Plan at any time. The 1996 U.S. Plan will terminate on April 11,
2006, unless terminated sooner by the Board.

| | Stock
      Option Grants to Board Members
| | ------------------------------------------

Under
the automatic grant program, each individual joining the Board as a non-employee director receives
at that time, an automatic option grant for up to 30,000 ordinary shares, vesting over four years.
In addition, at each annual shareholders meeting, each non-employee director who is to continue to
serve as a non-employee director after such annual meeting is automatically granted a fully vested
option to purchase up to an additional 18,000 ordinary shares, provided that the director has served
as a non-employee director for at least six months prior to the date of such annual meeting. The
exact number of ordinary shares covered by the options to be granted to each non-employee director
is determined by the other directors in office immediately prior to the date of his or her election
or appointment, or the date of the annual meeting, as the case may be. Each option has an exercise
price not less than the fair market value of the ordinary shares on the automatic grant date and
a maximum term of ten years, subject to earlier termination following the optionees cessation
of Board service.

| | Zone
      Labs 1998 Stock Option
| | ---------------------------------

In
  connection with its acquisition of Zone Labs in March 2004, the Company assumed
  all of the outstanding Zone Labs stock options under the Zone Labs 1998 Stock
  Option Plan (the Zone Labs Plan), which were converted into options
  to purchase 2,847,318 shares of the Companys ordinary shares. The stock
  options generally have terms of between five and ten years and generally vest
  over a four-year period. These options were assumed at prices of between $1.33
  and $6.08 per share, with a weighted average exercise price of $4.67 per share.
  Of the stock options assumed 1,621,284 were exercisable with a weighted average
  exercise price of $3.99 per share. No further stock options can be granted under
  the Zone Labs Plan.

29

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Employee Stock Purchase Plan

On
November 24, 1996, the Company adopted an Employee Stock Purchase Plan (the Purchase Plan),
which was ratified by the Companys shareholders. Under the Purchase Plan, 6,000,000 ordinary
shares were authorized for issuance. As of February 17, 2004, 1,298,000 ordinary shares have been
issued under the Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423
of the United States Internal Revenue Code, is implemented by six-month offerings with purchases
occurring at six-month intervals in January and July. The Compensation Committee of the Board administers
the Purchase Plan. Employees of the Company and some of its subsidiaries are eligible to participate
if they are full time employed for more than 20 hours per week. The Purchase Plan permits eligible
employees to purchase ordinary shares through payroll deductions, which may not exceed 15% of an
employees compensation, nor more than 1,250 shares per participant on any purchase date. The
price of the ordinary shares purchased under the Purchase Plan will be 85% of the lower of the fair
market value of the ordinary shares at the beginning of the six-month offering period or on the semi-annual
purchase date. Employees may terminate their participation in the Purchase Plan at any time during
the offering period, and participation ends automatically on termination of employment with the Company.
Each outstanding purchase right will be exercised immediately prior to a merger or consolidation
of the Company. The Board may amend or terminate the Purchase Plan immediately after the close of
any purchase date. However, the Board may not, without shareholders approval, materially increase
the number of ordinary shares available for issuance, alter the purchase price formula so as to reduce
the purchase price payable for ordinary shares, or materially modify the eligibility requirements
for participation or the benefits available to participants. The Purchase Plan terminates by its terms in July 2006.

Change of Control Arrangements

The
Compensation Committee of the Board of Directors, as administrator of the 1996 Plan, has the authority
to provide for accelerated vesting of the ordinary shares subject to outstanding options held by
the executive officers in connection with certain changes in control of the Company or the subsequent
termination of the officers employment following the change in control event.

Employees

As
of December 31, 2003, the Company had 1,145 employees, of whom 321 were engaged in research, development,
and quality assurance, 486 were engaged in marketing, sales and business development, 163 were engaged
in customer support, and 175 were engaged in Information systems, administration and finance. From
time to time, the Company also engages a limited number of consultants, subcontractors and temporary
help. As of December 31, 2003, the Company had 50 people of the abovementioned nature. The Company
believes that its relations with its employees are satisfactory.

As
  of December 31, 2003, the Company employed 500 people in Israel, 463 people
  in the United States and 182 people in the rest of the world. With respect to
  its employees in Israel, the Company is subject to various Israeli labor laws
  and labor practices, and to administrative orders extending certain provisions
  of collective bargaining agreements between the Histadrut (Israels General
  Federation of Labor) and the Coordinating Bureau of Economic Organizations (the
  Israeli federation of employers organizations) to all private sector employees.
  For example, mandatory cost of living adjustments, which compensate Israeli
  employees for a portion of the increase in the Israeli consumer price index,
  are determined on a nationwide basis. Israeli law also requires the payment
  of severance benefits upon the termination, retirement or death of an employee.
  The Company meets this requirement by contributing on an ongoing basis towards
  managers insurance funds that combine pension, insurance and,
  if applicable, severance pay benefits. In addition, Israeli employers and employees
  are required to pay specified percentages of wages to the National Insurance
  Institute, which is similar to the United States Social Security Administration.
  Other provisions of Israeli law or regulation govern matters such as the length
  of the workday, minimum wages, other terms of employment and restrictions on
  discrimination. The Company is subject to the labor laws and regulations of
  other jurisdictions in the world where it has employees.

30

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|ITEM 7.MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|--------------------------------------------------------------

The
following table sets forth certain information regarding ownership of the Companys ordinary
shares as of February 16, 2004 for each person who is known by the Company to own beneficially more
than five percent of the Companys outstanding ordinary shares:

|Name of Five Percent
      Shareholders | Amount Beneficially
      Owned | Percentage
      of Class (3)
|--------------------------------------- | ------------------------------- | -----------------------------
|Gil Shwed                               |                                 | 29,751,494                   
|Franklin
      Resources, Inc.          |                                 | 27,306,935                   
|Marius Nacht                            |                                 | 27,311,794                   
|Janus Capital
      Management LLC      |                                 | 17,335,164                   
|Shlomo Kramer                           |                                 | 13,746,900                   

|___________
|-----------

|(1) | The amount
      includes ordinary shares owned by each of the above, directly or indirectly and
      options immediately exercisable or that are exercisable within 60 days from
      December 31, 2003. The exercise price of some of these options is higher
      than the current Check Points share market price.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Based on
      the most recent 13G filing.                                                                                                                                                                                                                                                                                
|(3) | The percentage
      is calculated using the amount beneficially owned, divided by the sum of
      total outstanding ordinary shares and options exercisable within 60 days
      from December 31, 2003, if applicable.                                                                                                 

According to the Companys
transfer agent, as of March 22, 2004 there were 281 holders of record of the
Companys ordinary shares residing in the United States holding 202,596,715 ordinary
shares, or 80.78% of the aggregate number of ordinary shares outstanding.

The
Company is not directly or indirectly controlled by another corporation or by any foreign government.
The Companys major shareholders do not have different voting rights with respect to their shares.

|ITEM 8.FINANCIAL
      INFORMATION
|----------------------------------

Consolidated Financial Statements

The
Companys Consolidated Financial Statements included in this Annual Report on Form 20-F beginning
on page F-1 are hereby incorporated into this Annual Report by reference.

Dividend Policy

The
Company anticipates that it will retain any future earnings to support operations and to finance
the growth and development of its business. In addition, tax-exempt income attributable to the Companys
status as an Approved Enterprise under Israeli tax law can be distributed to shareholders without
subjecting the Company to taxes only upon the complete liquidation of the Company. Tax will be levied
if the Company decides to distribute such income in the future. Currently, the Company intends to
reinvest the amount of its tax-exempt income.

Legal Proceedings

In
1996, Checkpoint Systems, Inc. (CSI) a manufacturer of theft prevention devices for retail
stores has taken legal actions in respect of trademark infringement and unfair competition against
the Company. In 2002 a trademark opposition was filed by CSI with the Patent and Trademark Office.
In February 2003 the parties entered into an agreement that settled all of the disputes by definitively
setting forth each companys trademark description. The agreement permits both parties to use
the mark Check Point and to seek registration consistent with the descriptive aspects
of their respective businesses.

Beginning
  on August 29, 2003, Check Point received a number of class action complaints
  filed in the United States District Court for the Southern District of New York
  by holders of Check Point ordinary shares, alleging violations of Section 10(b)
  of the Securities Exchange Act of 1934 (the Exchange Act), Rule
  10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On November
  20, 2003, the court consolidated all of the complaints into one action and appointed
  lead plaintiff. On January 14, 2004, the lead plaintiff filed a Consolidated
  Amended Complaint, purporting to represent a putative class of all purchasers
  of ordinary shares between July 10, 2001 and April 4, 2002. The complaint generally
  alleges that Check Point and certain of its senior officers made misrepresentations
  and omissions regarding, among other things, Check Points sales, revenue,
  and future prospects. Check Point has retained experienced counsel and is currently
  moving to dismiss the complaint pursuant to Rule 12(b)(6) and Rule 9(b) of the
  Federal Rules of Civil Procedure and Section 21D(b)(3) of the Exchange Act.
  Further analysis cannot be provided until the resolution of the motion to dismiss.
  Check Point disputes the allegations of wrongdoing and intends to defend the
  matter vigorously. Check Point maintains applicable insurance as well as a financial
  provision in the financial statements as of December 31, 2003.

31

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|**ITEM
      9.** | **THE
      OFFER AND LISTING**
|----------------- | -------------------------------

The
Companys ordinary shares are traded publicly on the NASDAQ National Market under the symbol
CHKP.

The
following table lists the high and low closing sale prices for the ordinary shares for the periods
indicated as reported by the NASDAQ National Market:

|                                 | High   | Low
|-------------------------------- | ------ | ---
|1999                             | 34.85  |    
|2000                             | 113.33 |    
|2001                             | 110.58 |    
|2002                             | 47.20  |    
|2003                             | 21.27  |    
|                                 |        |    
|**2002**                         |        |    
|First Quarter                    | 47.20  |    
|Second Quarter                   | 29.50  |    
|Third Quarter                    | 18.71  |    
|Forth Quarter                    | 17.46  |    
|                                 |        |    
|**2003**                         |        |    
|First Quarter                    | 16.32  |    
|Second Quarter                   | 21.17  |    
|Third Quarter                    | 21.27  |    
|Forth Quarter                    | 18.36  |    
|                                
|**Most
      recent six months**
|September
      2003             | 20.39  |    
|October 2003                     | 18.22  |    
|November
      2003              | 18.36  |    
|December
      2003              | 18.06  |    
|January 2004                     | 21.61  |    
|February
      2004              | 24.07  |    

On
March 29, 2004, the last reported sale price of the Companys ordinary shares on the NASDAQ
National Market was $23.20 per share.

|**ITEM
      10.** | **ADDITIONAL
      INFORMATION**
|------------------ | --------------------------------

The
objectives and purposes of the Company are to engage in any lawful activity everywhere in the world.
In connection therewith, Check Point develops, markets and supports Internet security and VPN brand
solutions for enterprise and high-end networks, service providers, small businesses and consumers.
The Company delivers solutions that enable secure, reliable and manageable communications over Internet
Protocol networks including the Internet, intranets and extranets. Articles of Association

The
following is a summary of the material provisions of the Companys Articles of Association and
related provisions of Israeli corporate law. This summary is qualified in its entirety by reference
to the complete text of the Articles of Association; see Item 4  Information on the Company
 General and   Item 19 - Exhibits.

| | Description
      of Shares
| | ---------------------------

The
  Companys authorized share capital consists of 500,000,000 ordinary shares,
  NIS 0.01 nominal value, 5,000,000 Preferred Shares, NIS 0.01 nominal value,
  and 10 deferred shares, NIS 1 nominal value. The deferred shares are not entitled
  to any rights other than the right to receive their nominal value upon liquidation
  of the Company.

32

---

---

| | Description
      of Ordinary Shares
| | ------------------------------------

All
  issued and outstanding ordinary shares are validly issued, fully paid and non-assessable.
  The ordinary shares do not have pre-emptive rights. Neither the Memorandum of
  Association and the Articles of Association of the Company nor the laws of Israel
  restrict in any way the ownership or voting of ordinary shares by non-residents
  of Israel, except with respect to subjects of counties, which are in a state
  of war with Israel.

| | Dividend
      and Liquidation Rights
| | -------------------------------------

Subject
to the rights of the holders of shares with preferential or other special rights which may be authorized
in the future, holders of ordinary shares are entitled to receive dividends out of assets legally
available therefore and, in the event of the winding up of the Company, to share ratably in all assets
remaining after payment of liabilities, subject to applicable law.

| | Voting,
      Shareholder Meetings and Resolutions
| | --------------------------------------------------

Holders
of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote
of shareholders. Such voting rights may be affected by the grant of any special voting rights to
the holders of a class of shares with preferential rights that may be authorized in the future.

An
annual general meeting is to be held once every calendar year at such time (within a period of not
more than 15 months after the last preceding annual general meeting) and at such place, either within
or outside of Israel, as may be determined by the Board of Directors. The quorum required for a general
meeting of shareholders consists of at least two shareholders present in person or by proxy and holding
more than 50% of the voting power of the Company. A meeting adjourned for lack of quorum shall be
adjourned to the same day in the next week at the same time and place, or to such time and place
as the chairman of the Board may determine with the consent of the holders of a majority of the voting
power represented at the meeting in person or by proxy and voting on the question of adjournment.
If at such adjourned meeting a quorum is not present within one half hour from the time appointed
for holding the meeting, any two shareholders present in person or by proxy will constitute a quorum,
regardless of the number of shares represented.

An
ordinary resolution (such as resolution for the election of directors and the appointment of auditors)
shall be deemed adopted if approved by the holders of a majority of the voting power represented
at the meeting, in person or by proxy, and voting thereon. A special or extraordinary resolution
(such as a resolution amending the Memorandum of Association or Articles of Association) shall be
deemed adopted if approved by the holders of not less than 75% of the voting power represented at
the meeting, in person or by proxy, and voting thereon.

The
Israeli Companies Law requires that the shareholders approve certain transactions, actions and arrangements.
Such transactions, actions and arrangements include: (i) arrangements with a director as to the terms
of office or compensation; (ii) certain extraordinary transactions (as defined in the Companies Law);
and (iii) any action or extraordinary transaction involving a director or officer in which a majority
of the Board or the statutory audit committee has a personal interest. See Approval of Certain
Transactions; Obligations of Directors, Officers and Shareholders below in this Item 10.

| | Transfer
      of Shares and Notices
| | ------------------------------------

Fully
paid ordinary shares are issued in registered form and, subject to applicable securities laws, may
be transferred freely. Each shareholder of record is entitled to receive at least 21 days prior
notice of shareholder meetings. For purposes of determining the shareholders entitled to notice and
to vote at such meeting, the Board of Directors may fix the record date which shall be not more than
forty nor less than four days prior to the date of the meeting.

| | Election
      of Directors
| | ---------------------------

The
ordinary shares do not have cumulative voting rights in the election of directors. Thus, the holders
of ordinary shares conferring more than 50% of the voting power have the power to elect all the directors,
to the exclusion of the remaining shareholders.

| | Transfer
      Agent and Registrar
| | ----------------------------------

American
Stock Transfer & Trust Company is the Transfer Agent and Registrar for the ordinary shares.

| | Description
      of Preferred Shares
| | -------------------------------------

The
  Company has 5,000,000 preferred shares authorized. The Companys Articles
  of Association provide that the Board of Directors has the authority to issue
  the preferred shares in one or more series and to fix the rights, preferences,
  privileges and restrictions of such shares, including dividend rights, dividend
  rates, conversion rights, voting rights, terms of redemption, redemption prices,
  liquidation preferences and the number of shares constituting any series, without
  further vote or action by the shareholders. If this provision withstands judicial
  scrutiny under the Israeli Companies Law, the issuance of preferred shares may
  have the effect of delaying, deferring or preventing a change in control of
  the Company without further action by the shareholders. For example, the Board
  of Directors could issue preferred shares with voting and conversion rights,
  which may adversely affect the voting power of the holders of ordinary shares,
  including the loss of voting control to others. The Company currently has no
  plans to issue any preferred shares.

33

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---

| | Provisions
      Affecting a Potential Change of Control
| | --------------------------------------------------------

The
Companys Articles of Association provide that the Company may not engage in any business combination
with an interested shareholder for a period of three years following the date that such shareholder
became an interested shareholder, unless: (a) prior to such date, the Board of Directors approved
either the business combination or the transaction that resulted in the shareholders becoming
an interested shareholder; or (b) upon consummation of the transaction that resulted in the shareholders
becoming an interested shareholder, the interested shareholder owned at least 75% of the voting shares
of the Company outstanding at the time the transaction commenced. A business combination includes:
(i) any merger or consolidation involving the Company and the interested shareholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the Company in a transaction
involving the interested shareholder; (iii) subject to certain exceptions, any transaction that
results in the issuance or transfer by the Company of any shares of the Company to the interested
shareholder; (iv) any transaction involving the Company that has an effect of increasing the
proportionate share of the shares of any class or series of the Company beneficially owned by the
interested shareholder; or (v) the receipt by the interested shareholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits provided by or through the Company.
In general, the Articles of Association define an interested shareholder as any entity or person
beneficially owning 15% or more of the outstanding voting shares of the Company and any entity or
person affiliated with, controlling or controlled by such entity or person.

| | Approval
      of Certain Transactions; Obligations of Directors, Officers and Shareholders
| | -------------------------------------------------------------------------------------------

The
Israeli Companies Law codifies the fiduciary duties that office holders, including directors and
executive officers, owe to a company. An office holders fiduciary duties consist of a duty
of care and a duty of loyalty. The duty of care generally requires an office holder to act with the
level of care, which a reasonable office holder in the same position would have acted under the same
circumstances. The duty of loyalty includes avoiding any conflict of interest between the office
holders position in the company and such persons personal affairs, avoiding any competition
with the company, avoiding exploiting any corporate opportunity of the company in order to receive
personal advantage for such person or others, and revealing to the company any information or documents
relating to the companys affairs which the office holder has received due to his position as
an office holder. Each person listed in the table that appears at the beginning of Item 6 
Directors, Senior Management and Employees is an office holder of the Company.

Under
the Israeli Companies Law, generally all arrangements as to compensation of office holders who are
not directors require approval of the board of directors unless the Articles of Association provide
otherwise. Arrangements regarding the compensation of directors also require audit committee and
shareholder approval. The Israeli Companies Law requires that an office holder promptly disclose
any personal interest that he may have and all related material information known to him, in connection
with any existing or proposed transaction with the company. In addition, the office holder must also
generally disclose any personal interest held by the office holders specified relatives, or
by any corporation in which the office holder or the office holders relative is a five percent
or greater shareholder, director or general manager or in which he has the right to appoint at least
one director or the general manager.

In
the case of a transaction that is not an extraordinary transaction, after the office holder complies
with the above disclosure requirements, only board of directors approval is required unless
the Articles of Association of the company provide otherwise. Such approval must determine that the
transaction is not adverse to the companys interest. If the transaction is an extraordinary
transaction, then in addition to any approval required by the Articles of Association, it also must
be approved by the audit committee and by the board of directors and, under specified circumstances,
by a meeting of the shareholders. An Israeli company whose shares are publicly traded shall not be
entitled to approve such a transaction unless, at the time the approval was granted, two members
of the audit committee were outside directors and at least one of them was present at the meeting
at which the audit committee decided to grant the approval. An extraordinary transaction is a transaction
not in the ordinary course of business, a transaction that is not on market terms, or a transaction
that is likely to have a material impact on the companys profitability, assets or liabilities.
An office holder who has a personal interest in a matter that is considered at a meeting of the board
of directors or the audit committee generally may not be present at this meeting or vote on this matter.

The
  Israeli Companies Law applies the same disclosure requirements to a controlling
  shareholder of a public company, which includes a shareholder that holds 25%
  or more of the voting rights 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
  or employee, require the approval of the audit committee, the board of directors
  and the shareholders of the company. Shareholders approval must either include
  at least one-third of the votes of disinterested shareholders who are present,
  in person or by proxy, at the meeting or, alternatively, the total shareholdings
  of the disinterested shareholders who vote against the transaction must not
  represent more than one percent of the voting rights in the company.

34

---

---

Under
the Israeli Companies Law, a shareholder has a duty to act in good faith toward the company and other
shareholders and refrain from abusing his power in the company, including, among other things, voting
in the general meeting of shareholders on the following matters:

| |  | any amendment
      to the articles of association;                               
| | - | ----------------------------------------------------------------------------------
| |   |                                                                                   
| |  | an increase
      of the companys authorized share capital;                      
| |   |                                                                                   
| |  | a merger;
      or                                                                
| |   |                                                                                   
| |  | approval
      of interested party transactions that require shareholder approval.

In
addition, any controlling shareholder, any shareholder who can determine the outcome of a shareholder
vote and any shareholder who, under the companys articles of association, can appoint or prevent
the appointment of an office holder, is under a duty to act with fairness towards the company. The
Israeli Companies Law does not describe the substance of this duty.

| | Indemnification
      of Directors and Officers; Limitations on Liability
| | -------------------------------------------------------------------------

Israeli
law permits a company to insure an office holder in respect of liabilities incurred by him as a result
of the breach of his duty of care to the company or to another person, or as a result of the breach
of his fiduciary duty to the company, to the extent that he acted in good faith and had reasonable
cause to believe that the act would not prejudice the company. A company can also insure an office
holder for monetary liabilities as a result of an act or omission that he committed in connection
with his serving as an office holder. Moreover, a company can indemnify an office holder for (a)
monetary liability imposed upon him in favor of other persons pursuant to a court judgment, including
a settlement or an arbitrators decision approved by a court, and (b) reasonable litigation
expenses, including attorneys fees, actually incurred by him or imposed upon him by a court,
in an action, suit or proceeding brought against him by or on behalf of the company or other persons,
or in a criminal action in which he was acquitted, or in a criminal action which does not require
criminal intent in which he was convicted, in each case in connection with his activities as an office
holder. The Companys Articles of Association allow for insurance and indemnification of office
holders to the fullest extent permitted by law. The Company has entered into indemnification, insurance
and exculpation agreements with its directors and senior officers, following shareholder approval
of these agreements. The Company has directors and officers liability insurance covering
the officers and directors of the Company and its subsidiaries for certain claims.

| | Borrowing
      Power: Amendment of Rights of Ordinary Shares
| | -------------------------------------------------------------

The
Companys Articles of Association grant broad powers to the Board of Directors to authorize
the Company to borrow funds, repay borrowings, make guarantees and grant security interests in borrowings.
The rights and provisions of the ordinary shares may be cancelled, added to, restricted, amended
or otherwise altered with a vote of the holders of at least 75% of the outstanding ordinary shares
voting at a duly convened shareholders meeting.

NASDAQ National Market Corporate Governance Rules

In
accordance with Rule 4350(a)(1) of the Rules of Corporate Governance of The NASDAQ National Market,
Inc., the Company has received an exemption from the requirement to distribute an annual report to
its shareholders prior to the Companys annual general meeting of shareholders. The basis for
the exemption is the fact that the generally accepted business practice in Israel, where the
Company is incorporated, is not to distribute an annual report to shareholders. The Company
posts its Annual Report on Form 20-F on its Website (www.checkpoint.com) promptly following
the filing of the Annual Report with the Securities and Exchange Commission.

Israeli Taxation, Foreign Exchange Regulation and Investment Programs

The
following is a summary of the material Israeli tax consequences, Israeli foreign exchange regulations
and certain Israeli government programs affecting the Company.

To the extent that the discussion is based on new tax or other legislation that has not been subject
to judicial or administrative interpretation, there can be no assurance that the views expressed
in the discussion will be accepted by the tax or other authorities in question. The discussion is
not intended, and should not be construed, as legal or professional tax advice and is not exhaustive
of all possible tax considerations.

| | Tax Reform
| | ----------

On
  January 1, 2003 a comprehensive tax reform took effect in Israel. Pursuant to
  the reform, resident companies are subject to Israeli tax on income accrued
  or derived in Israel or abroad. In addition, the concept of controlled
  foreign corporation was introduced according to which an Israeli company
  may become subject to Israeli taxes on certain income of a non-Israeli subsidiary
  if the subsidiarys primary source of income is passive income (such as
  interest, dividends, royalties, rental income or capital gains). The tax reform
  also substantially changed the system of taxation of capital gains.

35

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| | Statutory
      Corporate Tax Rate
| | ----------------------------------

Israeli
companies are generally subject to corporate tax at the rate of 36% of their taxable income. However
in the Companys case, the rate is currently effectively reduced, as described below.

| | Tax benefits
      under the Law for the Encouragement of Capital Investments, 1959
| | -----------------------------------------------------------------------------------

The
Companys facilities have been granted Approved Enterprise status pursuant to the Law for the
Encouragement of Capital Investments, 1959 (the Investment Law), which provides certain
tax and financial benefits to investment programs that have been granted such status.

The
Investment Law provides that a proposed capital investment in eligible facilities may, upon application
to the Investment Center of the Ministry of Industry, Trade and Labor of the State of Israel, be
designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates
to a specific investment program delineated both by its financial scope, including its capital sources,
and by its physical characteristics, such as the equipment to be purchased and utilized pursuant
to the program. The tax benefits under the Investment Law are not available for income derived from
products manufactured outside of Israel.

A company
owning an Approved Enterprise may elect to receive either governmental grants or an alternative package
of tax benefits. Under the alternative package a companys undistributed income derived from
an Approved Enterprise will be exempt from corporate tax for a period of two years (depending on
the geographic location of the Approved Enterprise within Israel). The exemption commences in the
first year of taxable income, and taxed at a reduced corporate tax of 10% to 25% for the following
five to eight years, depending on the extent of foreign investment in the Company. The benefits period
is limited to twelve years from completion of the investment under the approved plan or fourteen
years from the date of approval, whichever is earlier. A Foreign Investors Company (FIC),
as defined in the Investment Law, may enjoy benefits for an extended period of up to ten years. A
FIC is a company of which more than 25% of its shareholders are non-Israeli residents.

The
tax benefits derived from any certificate of approval relate only to taxable income attributable
to the specific Approved Enterprise. If a company has more than one approval or only a portion of
its capital investments are approved, its effective tax rate is the result of a weighted combination
of the applicable rates.

Distribution
of earnings derived from Approved Enterprise which were previously taxed at reduced tax rates, would
not result in additional tax consequences to the Company. However, if retained tax-exempt income
is distributed in a manner other than upon the complete liquidation of the Company, the Company would
be taxed at the reduced corporate tax rate applicable to such profits (between 10%-25%). The Company
is not obliged to distribute exempt retained profits under the alternative package of benefits, and
may generally decide from which source of income to declare dividends. The Company currently intends
to reinvest the amount of its tax-exempt income and not to distribute such income as a dividend.
Dividends from Approved Enterprises are generally taxed at a rate of 15% (which is withheld and paid
by the Company paying the dividend) if such dividend is distributed during the benefits period or
within twelve years thereafter. The twelve-year limitation does not apply to an FIC.

The
Companys production facilities have been granted the status of Approved Enterprises. Income
arising from the Companys Approved Enterprise facilities is tax-free under the alternative
package of benefits described above and entitled to reduced tax rates based on the level of foreign
ownership for specified periods. The Company has derived, and expects to continue to derive, a substantial
portion of its operating income from its Approved Enterprise facilities. The tax benefits attributable
to the Companys current Approved Enterprises are scheduled to expire gradually from 2005 to 2013.

The
Investment Center bases its decision as to whether to approve or reject an application for designation
as an Approved Enterprise, on the criteria set forth in the Investment Law and regulations, the then
prevailing policy of the Investment Center, and the specific objectives and financial criteria of
the applicant. Accordingly, there can be no assurance that any such application will be approved.
In addition, the benefits available to an Approved Enterprise are conditional upon the fulfillment
of conditions stipulated in the Investment Law and related regulations and the criteria set forth
in the specific certificate of approval. In the event that a company does not meet these conditions,
it would be required to refund a portion of the benefits already received, plus a linkage adjustment
to the Israeli consumer price index and interest.

The
  Investment Law and regulations prescribing the benefits provide for an expiration
  date for the grant of new benefits. The expiration date has been extended several
  times in the past. The expiration date currently in effect is June 30, 2004
  (which may be extended by ministerial decision until December 31, 2004), and
  no new benefits will be granted after that date unless the expiration date is
  extended again. There can be no assurance that new benefits will be available
  after June 30, 2004 or that existing benefits will be continued in the future
  at their current level or at any level.

36

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| | Tax
      Benefits Under the Law for the Encouragement of Industry (Taxation), 1969
| | -----------------------------------------------------------------------------------

According
to the Law for the Encouragement of Industry (Taxation), 1969 (the Industry Encouragement Law),
an Industrial Company is a company resident in Israel, that at least 90% of its income in any tax
year (determined in Israeli currency, exclusive of income from certain government loans, capital
gains, interest and dividends), is derived from an Industrial Enterprise owned by it. An Industrial
Enterprise is defined as an enterprise whose major activity in a given tax year is industrial production
activity. The Company believes it currently qualifies as an Industrial Company within the definition
of the Industry Encouragement Law. Under the Industry Encouragement Law, Industrial Companies are
entitled to the following preferred corporate tax benefits:

| |  | 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
      related Israeli Industrial Companies; and
| |   |                                                                                                                                         
| |  | Accelerated
      depreciation rates on equipment and buildings.                                                                        

Eligibility
for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval
from any governmental authority. The Israeli tax authorities may determine that we do not qualify
as an Industrial Company, which would entail the loss of the benefits that relate to this status.
In addition, no assurance can be given that the Company will continue to qualify as an Industrial
Company, in which case the benefits described above will not be available in the future.

| | Special
      Provisions Relating to measurement of taxable income
| | ------------------------------------------------------------------

Until
December 31, 2001, the Company measured its taxable income in accordance with the Income Tax Law
(Inflationary Adjustments), 1985 (the Inflationary Adjustments Law) which represents
an attempt to overcome the problems presented to a traditional tax system by an economy undergoing
rapid inflation. The Inflationary Adjustments Law is highly complex. Since January 1, 2002, the Company
elected to measure its taxable income based on the changes in the exchange rate of the U.S. dollar
rather than on the basis of inflation.

| | Capital
      Gains Tax applicable to Shareholders
| | --------------------------------------------------

Israeli
law generally imposes a capital gains tax on the sale of capital assets located in Israel, including
shares in Israeli resident companies, by both residents and non-residents of Israel, unless a specific
exemption is available or unless a treaty between Israel and the country of the non-resident provides
otherwise. Regulations promulgated under the Israeli Income Tax Ordinance provided for an exemption
from Israeli capital gains tax for gains accrued before January 1, 2003 and derived from the sale
of shares of an Industrial Company, as defined by the Industry Encouragement Law, that are traded
on specified non-Israeli markets, including The NASDAQ National Market, provided that the sellers
purchased their shares either in the companys initial public offering or in public market transactions
thereafter. This exemption does not apply to shareholders who are in the business of trading securities,
or to shareholders that are Israeli resident companies subject to the Inflationary Adjustments Law.
The Company believes that it is currently an Industrial Company, as defined by the Industry Encouragement
Law. The status of a company as an Industrial Company may be reviewed by the tax authorities from
time to time. There can be no assurance that the Israeli tax authorities will not deny the Companys
status as an Industrial Company, possibly with retroactive effect.

On
January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment No.132), 2002, known
as the tax reform, came into effect thus imposing capital gains tax at a rate of 15% on gains derived
on or after January 1, 2003 from the sale of shares in Israeli companies publicly traded on a recognized
stock exchange outside of Israel. This tax rate does not apply to:(1) dealers in securities;(2) shareholders
that report in accordance with the Inflationary Adjustments Law; or (3) shareholders who acquired
their shares prior to an initial public offering. The tax basis of shares acquired prior to January
1, 2003 will be determined as the higher between the original price paid for the share and the average
closing share price in the three trading days preceding January 1, 2003. Non-Israeli residents shall
be exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded
on a stock exchange recognized by the Israeli Ministry of Finance, provided such shareholders did
not acquire their shares prior to an initial public offering. Although it is generally believed that
the NASDAQ National Market will be included in the list of recognized stock exchanges, the Israeli
Minister of Finance has not yet issued a decree determining the list of such stock exchanges. In
any event, the provisions of the tax reform shall not affect the exemption from capital gains tax
for gains accrued before January 1, 2003, as described in the previous paragraph.

In
  addition, pursuant to the Convention Between the Government of the United States
  of America and the Government of Israel with respect to Taxes on Income, as
  amended (the United States-Israel Tax Treaty), the sale, exchange
  or disposition of ordinary shares by a person who qualifies as a resident of
  the United States within the meaning of the United States-Israel Tax Treaty
  and who is entitled to claim the benefits afforded to such person by the United
  States- Israel Tax Treaty  (a Treaty United States Resident)
  generally will not be subject to the Israeli capital gains tax unless such Treaty
  United States Resident holds, directly or indirectly, shares representing 10%
  or more of the Companys voting power during any part of the twelve-month
  period preceding such sale, exchange or disposition, subject to certain conditions.
  A sale, exchange or disposition of ordinary shares by a Treaty United States
  Resident who holds, directly or indirectly, shares representing 10% or more
  of the Companys voting power at any time during such preceding twelve-month
  period would be subject to such Israeli tax, to the extent applicable; however,
  under the United States-Israel Tax Treaty, such Treaty United States Resident
  would be permitted to claim a credit for such taxes against the United States
  federal income tax imposed with respect to such sale, exchange or disposition,
  subject to the limitations in United States laws applicable to foreign tax credits.
  The United States-Israel Tax Treaty does not relate to United States state or
  local taxes.

37

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| | Taxation
      of Non-Resident Shareholders
| | -------------------------------------------

Non-residents
of Israel are subject to Israeli income tax on income accrued or derived from sources in Israel,
including passive income such as dividends, royalties and interest. On distributions of dividends,
other than bonus shares and stock dividends, income tax at the rate of 25% is withheld at the source,
unless a different rate is provided in a treaty between Israel and the shareholders country
of residence. If the dividends are distributed out of Approved Enterprise earnings, the applicable
tax rate would be 15%. Under the United States- Israel Tax Treaty, the maximum tax on dividends paid
to a holder of ordinary shares who is a Treaty United States Resident will be 25%, however the tax
rate is reduced to12.5% for dividends not generated by an Approved Enterprise to a corporation which
holds 10% or more of the Companys voting power during a certain period preceding the distribution
of the dividend. Dividends derived from an Approved Enterprise will still be subject to 15% tax withholding.

| | Foreign
      Exchange Regulations
| | ----------------------------------

Dividends,
if any, paid to the holders of the ordinary shares, and any amounts payable upon dissolution, liquidation
or winding up, as well as the proceeds of any sale in Israel of the ordinary shares to an Israeli
resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into
freely repatriable U.S. dollars at the rate of exchange prevailing at the time of conversion, however,
Israeli income tax is required to have been paid or withheld on these amounts. In addition, the statutory
framework for the potential imposition of exchange controls has not been eliminated, and may be restored
at any time by administrative action.

United States Federal Income Taxes

The
following summary sets forth the material United States federal income tax consequences applicable
to the following persons who purchase, hold or dispose of the ordinary shares (U.S. Shareholders);
(i) citizens or residents (as defined for U.S. federal income tax purposes) of the United States;
(ii) corporations or other entities taxable as corporations created or organized in or under
the laws of the United States or any state thereof;  (iii) estates, the income of
which is subject to United States federal income taxation regardless of its source; and (iv) trusts,
if (a) a U.S. court is able to exercise primary supervision over its administration and (b) one or
more U.S. persons have the authority to control all of its substantial decisions. This discussion
is based on the provisions of the Internal Revenue Code of 1986, as amended (the Code),
United States Treasury Regulations promulgated thereunder and administrative and judicial interpretations
thereof, all as in effect as of the date of this Annual Report on Form 20-F. This discussion generally
considers only U.S. Shareholders that will hold the ordinary shares as capital assets and does not
consider (a) all aspects of U.S. federal income taxation that may be relevant to particular
U.S. Shareholders by reason of their particular circumstances (including potential application of
the alternative minimum tax), (b) U.S. Shareholders subject to special treatment under the U.S. federal
income tax laws, such as financial institutions, insurance companies, broker-dealers, tax-exempt
organizations and foreign individuals or entities, (c) U.S. Shareholders owning directly or
by attribution 10% or more of the Companys outstanding voting shares, (d) U.S. Shareholders
who hold the ordinary shares as part of a hedging, straddle or conversion transaction, (e) U.S. Shareholders
who acquire their ordinary shares in a compensatory transaction, (f) U.S. Shareholders whose functional
currency is not the U.S. dollar, or (g) any aspect of state, local or non-United States tax law.

The
following summary does not address the impact of an investors individual tax circumstances.
Accordingly, each investor should consult his or her own tax advisor as to the particular tax consequences
to him or her of an investment in the ordinary shares, including the effects of applicable state,
local or non-United States tax laws and possible changes in the tax laws.

| | Dividends
      Paid on the Ordinary Shares
| | -------------------------------------------

A
  U.S. Shareholder generally will be required to include in gross income the amount
  of any distributions paid in respect of the ordinary shares (including the amount
  of any Israeli taxes withheld therefrom) to the extent that such distributions
  are paid out of the Companys current or accumulated earnings and profits
  as determined for U.S. federal income tax purposes. Under U.S. legislation enacted
  in 2003, which is generally effective for tax years beginning after December
  31, 2002 and before January 1, 2009, a maximum U.S. federal income tax rate
  of 15% (rather than the higher rates of tax generally applicable to items of
  ordinary income) will apply to qualified dividend income received
  by an individual (as well as certain trusts and estates) provided certain holding
  period requirements are met. Qualified dividend income generally includes dividends
  paid by a U.S. corporation or a qualified foreign corporation.  A
  non-U.S. corporation (other than a foreign personal holding corporation, foreign
  investment company, or passive foreign investment company) generally will be
  considered to be a qualified foreign corporation if (i) the shares of the non-U.S.
  corporation are readily tradable on an established securities market in the
  United States, or (ii) the non-U.S. corporation is eligible for the benefits
  of a comprehensive U.S. income tax treaty determined to be satisfactory to the
  United States Department of the Treasury. The United States Department of the
  Treasury and the Internal Revenue Service have determined that the United States-Israel
  Tax Treaty is satisfactory for this purpose. In addition, the United States
  Department of the Treasury and the Internal Revenue Service have determined
  that ordinary shares are considered readily tradable on an established securities
  market if such shares are listed on an established securities market in the
  United States such as the NASDAQ National Market. Information returns reporting
  dividends paid to U.S. Shareholders will identify the amount of dividends eligible
  for the reduced rates. Distributions in excess of such earnings and profits
  will be treated first as non-taxable return of capital reducing the U.S. Shareholders
  tax basis in the ordinary shares to the extent of the distributions, and then
  as capital gain from a sale or exchange of such ordinary shares. Such dividends
  will generally not qualify for the dividends received deduction available to
  corporations. The amount of any cash distribution paid in Israeli shekels will
  equal the U.S. dollar value of the distribution, calculated by reference to
  the spot exchange rate in effect on the date of the distribution.

38

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---

| | Credit
      for Israeli Taxes Withheld
| | ---------------------------------------

Subject
to certain conditions and limitations, any Israeli tax withheld or paid with respect to dividends
on the ordinary shares will generally be eligible for credit against a U.S. Shareholders United
States federal income tax liability at such U.S. Shareholders election. The Code provides limitations
on the amount of foreign tax credits that a U.S. Shareholder may claim, including extensive separate
computation rules under which foreign tax credits allowable with respect to specific categories
of income cannot exceed the United States federal income taxes otherwise payable with respect to
each such category of income. U.S. Shareholders that do not elect to claim a foreign tax credit may
instead claim a deduction for Israeli income tax withheld or paid, but only for a year in which these
U.S. Shareholders elect to do so for all foreign income taxes. Special rules for determining a U.S.
Shareholders foreign tax credit limitation shall apply in the case of qualified dividend income.
Rules similar to those concerning adjustments to the foreign tax credit limitation to reflect any
capital gain rate differential shall also apply to any qualified dividend income. The rules relating
to foreign tax credits are complex, and each investor should consult his of her tax advisor to determine
whether and if he or her would be entitled to this credit.

| | Disposition
      of the Ordinary Shares
| | ----------------------------------------

The
sale or exchange of ordinary shares will generally result in the recognition of capital gain or loss
in an amount equal to the difference between the amount realized on the sale or exchange and the
U.S. Shareholders tax basis in the ordinary shares. Such gain or loss generally will be long-term
capital gain or loss if the U.S. Shareholders holding period of the ordinary shares exceeds
one year at the time of the disposition. Under recently enacted U.S. legislation, long-term capital
gains realized upon a sale or exchange of ordinary shares after May 5, 2003 and before the end of
a taxable year which begins before January 1, 2009 generally will be subject to a maximum U.S. federal
income tax rate of 15%. Gain or loss recognized by a U.S. Shareholder on a sale or exchange of ordinary
shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.
Under the United States-Israel Tax Treaty gain derived from the sale, exchange or other disposition
of ordinary shares by a holder who is a resident of the United States for purposes of the treaty
and who sells the ordinary shares within Israel may be treated as foreign source income for U.S.
foreign tax credit purposes.

| | Passive
      Foreign Investment Company Status
| | -----------------------------------------------

Based
upon its current income, assets and activities, the Company believes that it is currently not a passive
foreign investment company (a PFIC) for U.S. federal income tax purposes and currently
does not anticipate that it will be a PFIC for any subsequent year. The Company would be classified
as a PFIC if, for any taxable year, either (i) 75% or more of its gross income in the taxable
year is passive income, or (ii) 50% or more of the average value of its gross assets in the taxable
year, calculated quarterly by value, produce or are held for the production of passive income. For
this purpose, passive income includes dividends, interest, royalties, rents, annuities and the excess
of gain over losses from the disposition of assets, which produce passive income. If the Company
were a PFIC for any taxable year during a U.S. Shareholders holding period and the U.S. Shareholder
does not timely elect to treat the Company as a qualified electing fund under Section
1295 of the Code or elect to mark the ordinary shares to market, a U.S. Shareholder would be subject
to special tax rules on the receipt of an excess distribution on the ordinary shares
(generally, a distribution to the extent it exceeds 125% of the average annual distributions in the
prior three years) and on gain from the disposition of the ordinary shares. Under these rules, the
excess distribution and any gain would be allocated ratably over the U.S. Shareholders holding
period for the ordinary shares, the amount allocated to the current taxable year and any taxable
year prior to the first taxable year in which the Company is a PFIC would be taxed as ordinary income,
the amount allocated to each of the other taxable years would be subject to tax at the highest marginal
rate in effect for the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed on the resulting tax allocated to such other  taxable
years. The tax liability with respect to amounts allocated to years prior to the year of the disposition
or excess distribution cannot be offset by any net operating losses. Additionally, if
the Company is deemed to be a PFIC, a U.S. Shareholder who acquires ordinary shares in the Company
from a decedent will be denied the normally available step-up in tax basis to fair market value for
the ordinary shares at the date of the death, and instead will have a tax basis equal to the decedents
tax basis if lower than fair market value.

U.S.
  Shareholders may avoid taxation under the rules described above by making (i)
  a qualified electing fund election for the first taxable year in
  which the Company is a PFIC to include such holders share of the Companys
  ordinary earnings and net capital gain on a current basis or (ii) a deemed
  sale election in a subsequent year, along with a qualified electing fund
  election, if the Company is still classified as a PFIC. However, a U.S. Shareholder
  may make a qualified electing fund election only if the Company agrees to furnish
  the U.S. Shareholder annually with certain tax information. The Company does
  not presently prepare or provide such information, and such information may
  not be available to U.S. Shareholders if the Company is subsequently determined
  to be a PFIC.

39

---

---

U.S.
Shareholders holding marketable shares (which the Company considers the ordinary shares
to be) in a PFIC may make an election to mark-to-market the ordinary shares annually,
rather than be subject to the above-described rules. Under such election, the U.S. Shareholder will
include in income each year any excess of the fair market value of the PFIC stock at the close of
each taxable year over the U.S. Shareholders adjusted basis in such stock. The U.S. Shareholder
will generally be allowed an ordinary deduction for the excess, if any, of the adjusted basis of
the PFIC stock over its fair market value as of the close of the taxable year, or the amount of any
net mark-to-market gains recognized for prior taxable years, whichever is less. A U.S. Shareholders
adjusted tax basis in the ordinary shares will generally be adjusted to reflect the amounts included
or deducted under the mark-to-market election. Additionally, any amounts included in income pursuant
to a mark-to-market election, as well as gain on the actual sale or other disposition of the PFIC
stock, are treated as ordinary income. Ordinary loss treatment also applies to any loss recognized
on the actual sale or disposition of PFIC stock to the extent that the amount of such loss does not
exceed the net mark-to-market gains previously included with respect to such stock. An election to
mark-to-market generally will apply to the taxable year in which the election is made and all subsequent taxable years.

If
a U.S. Shareholder makes one of these two elections, distributions and gain will not be recognized
ratably over the U.S. Shareholders holding period or be subject to an interest charge as described
above. Further, the denial of basis step-up at death described above will not apply. A U.S. Shareholder
making one of these two elections may experience current income recognition, even if no cash is distributed
by the Company.

A U.S.
Shareholder who beneficially owns shares in a PFIC must file an annual return with the IRS on IRS
Form 8621 that describes any distributions received with respect to such shares and any gain realized
on the disposition of such shares.

A number
of specific rules and requirements apply to both of these elections available to owners of a PFIC
and a U.S. Shareholder is urged to consult his or her tax advisor concerning these elections.

| | Information
      Reporting and Back up Withholding
| | ---------------------------------------------------

Dividend
payments and proceeds from the sale or disposal of ordinary shares may be subject to information
reporting to the Internal Revenue Service and possible U.S. federal backup withholding at the current
rate of 28% (increased to 31% for taxable years 2011 and thereafter). Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer identification number or certificate
of foreign status and makes any other required certification or who is otherwise exempt from backup
withholding (for example, a corporation). Any U.S. Shareholder who is required to establish exempt
status generally must file IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
Finalized Treasury Regulations which are applicable to payments made after December 31, 2000 have
generally expanded the circumstances under which information reporting and backup withholding may
apply. Amounts withheld as backup withholding may be credited against a U.S. Shareholders federal
income tax liability. A U.S. Shareholder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue
Service and furnishing any required information.

|ITEM
      11. | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------------- | ----------------------------------------------------------------

Market
  risks relating to the Companys operations result primarily from weak economic
  conditions in the markets in which the Company sells its products and from changes
  in exchange rates or in interest rates. Other than forward exchange currency
  contracts and forward rate agreements described below which are used for hedging
  cash flow in transactions not denominated in U.S. dollars, the Company does
  not use derivative financial instruments in its investment portfolio.

40

---

---

The
table below presents principal amounts and related weighted average rates by date of maturity for
the Companys investments in cash and cash equivalents, deposits and marketable securities held
as of December 31, 2003.

|                                                                                  | Maturity         | Total
      Book
      Value | Fair
      Value 
      at Dec. 31, 2003
|--------------------------------------------------------------------------------- | ---------------- | ---------------------------- | ----------------------------------------
|                                                                                  | 2004             | 2005                         | 2006                                    
|(In
      thousands, except percentages)                                         
|Government
      and Corporate
      Securities - Fixed interest rates            |                  |                              |                                         
|Book
      Value                                                                  | $
      414,558  | $
      262,479              | $ 61,473                                
|WAIR*                                                                             | 3.14%            | 3.66%                        | 3.45%                                   
|Structured
      Products***                                                      | Book
      Value | $ 202,646                    | -                                       
|WAIR*                                                                             | 5.15%            | -                            | -                                       
|Mortgage
      and Asset Backed Securities                                        | Book
      Value | $ 49,871                     | $ 53,982                                
|WAIR*                                                                             | 2.40%            | 1.89%                        | 2.29%                                   
|Auction
      Rate Securities                                                     | Book
      Value | $ 92,550                     | -                                       
|WAIR*                                                                             | 1.61%            | -                            | -                                       
|Government
      and
      Corporate
      Securities - Floating interest rates** | Book
      Value | $ 24,049                     | $ 12,653                                
|WAIR*                                                                             | 2.61%            | 1.32%                        | 1.30%                                   
|Money
      Market instruments                                                    | Book
      Value | $
      8,596                | -                                       
|WAIR*                                                                             | 1.03%            | -                            | -                                       
|Money
      market
      Fund                                                     | Book
      Value | $ 327,188                    | -                                       
|WAIR*                                                                             | 1.10%            | -                            | -                                       
|Deposits                                                                          | Book
      Value | $ 16,888                     | -                                       
|WAIR*                                                                             | 3.61%            | -                            | -                                       
|Total                                                                             | Book
      Value | $ 1,136,346                  | $ 329,114                               
|WAIR*                                                                             | 2.73%            | 3.28%                        | 2.83%                                   

|               
|---------------
|_______________
|*              
|**             
|***            

41

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Foreign Currency Risk

Most
  of the Companys sales are denominated in U.S. dollars. In addition, a
  substantial portion of the Companys expenses is incurred in U.S. dollars.
  The Companys management believes that the U.S. dollar is the primary currency
  of the economic environment in which the Company and its subsidiaries operate,
  and thus the U.S. dollar is their functional and reporting currency. Accordingly,
  monetary accounts maintained in currencies other than the U.S. dollar (principally
  cash and cash equivalents, short-term deposits and liabilities) are remeasured
  into U.S. dollars using the foreign exchange rate at the balance sheet date.
  Operational accounts and non-monetary balance sheet accounts are measured and
  recorded at the rate in effect at the date of the transaction. All transaction
  gains and losses of the remeasurement of monetary balance sheet items are reflected
  in the statement of income as financial income or expenses, as appropriate.

The
Company hedges the exposure of assets and anticipated revenues denominated in the Japanese Yen as
well as anticipated expenses denominated in Euros with forward and option contracts. The Company
monitors its foreign currency exposures periodically to maximize the overall effectiveness of its
foreign currency hedge positions. If these derivatives meet the definition of a hedge and are so
designated, depending on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivatives change in fair value is recognized in earnings.

As
of December 31, 2003, the Companys management believes that because the above transactions
are carried out with well-established institutions, liabilities owing to the Company will be fulfilled.
Total outstanding zero cost collar contracts and forward contracts to hedge customers balances
to sell/purchase U.S. dollars in exchange for Japanese Yen were in the amount of $ 9.3 million.
Total outstanding transactions to sell/purchase Euro in exchange for U.S. dollars were in the amount
of $4.0 million. The above transactions were for a period of up to three months. As of December 31
2003, the Company expects to reclassify during the following three months an insignificant amount
of unrealized losses from accumulated other comprehensive loss to expenses.

Interest Rate Risk

The
Companys exposure to market risk for changes in interest rates relates primarily to the Companys
investment in marketable securities. The Companys marketable securities are comprised of U.S.
and European government and corporate debt instruments. The fair value of the Companys long
and short-term securities is based upon their market values as of December 31, 2003.

In
2001, the Company has entered into forward rate agreements (FRA,) in the amount
of $125 million that effectively convert a portion of its floating rate investments to a fixed rate
basis for a 12 month period beginning one year after the date of the agreements, thus reducing the
impact of the interest rate changes on future interest income. The agreements were executed in November
2002, resulting in a total gain of approximately $3.4 million presented in the statement of income
as financial income. In August 2003, the company has entered into an additional FRA agreement in
the amount of $25 million for a 12 month period beginning one year after the date of the agreement.
As of December 31, 2003, the unrealized gain in respect of this agreement amounted to $0.2 million.

|ITEM
      12. | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------------- | ------------------------------------------------------------

Not applicable.

42

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**PART
  II**

|**ITEM
      13.** | **DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES**
|------------------ | ---------------------------------------------------------

There
are no defaults, dividend arrearages or delinquencies that are required to be disclosed.

|**ITEM
      14.** | **MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**
|------------------ | --------------------------------------------------------------------------------------

There
are no material modifications to, or qualifications of, the rights of security holders that are required
to be disclosed.

|**ITEM
      15.** | **CONTROLS
      AND PROCEDURES**
|------------------ | ---------------------------------

(a)
The Company performed an evaluation of the effectiveness of its disclosure controls and procedures
that are designed to ensure that the material financial and non-financial information required to
be disclosed on Form 20-F and filed with the Securities and Exchange Commission is recorded, processed,
summarized and reported timely. Based on the Companys evaluation, the Companys management,
including the CEO and CFO, has concluded that the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this report are effective. Notwithstanding the foregoing,
there can be no assurance that the Companys disclosure controls and procedures will detect
or uncover all failures of persons within Check Point to disclose material information otherwise
required to be set forth in the Companys reports.

(b)
There have been no significant changes in Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of the evaluation thereof. Therefore,
no corrective actions with regard to significant deficiencies and material weaknesses were taken.

|**ITEM
      16.**  | **Reserved.**                             
|------------------- | ------------------------------------------
|                    |                                           
|**ITEM
      16A.** | **AUDIT
      COMMITTEE FINANCIAL EXPERT**

The
Companys board of directors has determined that Mr. Irwin Federman is an audit committee
financial expert.

|ITEM
      16B. | CODE
      OF ETHICS
|--------------- | --------------------

In
  March 2004, the Companys board of directors adopted a Code of Ethics that
  applies to all employees, directors and officers of the Company, including the
  chief executive officer, chief financial officer, principal accounting officer
  and other individuals performing similar functions. A copy of the Companys
  Code of Ethics may be obtained, without charge, upon a written request addressed
  to the Companys investor relations department, 800 Bridge Parkway, Redwood
  City, California 94065 (telephone no. 650-628-2000).

43

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|ITEM
      16C. | PRINCIPAL
      ACCOUNTING FEES AND SERVICES
|--------------- | --------------------------------------------

Fees and Services

The
table below summarizes the audit fees paid by the Company and its consolidated subsidiaries during
each of 2002 and 2003.

|                             | Year Ended
      December 31, 2002 | Year Ended
      December 31, 2003
|---------------------------- | ---------------------------------- | ----------------------------------
|
|
|                             |                                    |                                   
|Audit
      Fees             | $    380                           |                                   
|Audit-Related
      Fees (1) | 77                                 |                                   
|Tax Fees
      (2)           | 602                                |                                   
|Total                        | 1,059                              |                                   

| | ______________
| | --------------
|
| | (1)           
| |               
| | (2)           
| |               

| | Audit
      Committees pre-approval policies and procedures
| | ------------------------------------------------------------

The
audit committee of the Companys board of directors chooses and engages the Companys independent
auditors to audit the Companys financial statements. In March 2004, the Companys audit
committee adopted a policy requiring management to obtain the audit committees approval before
engaging the Companys independent auditors to provide any audit or permitted non-audit services
to the Company or its subsidiaries. This policy, which is designed to assure that such engagements
do not impair the independence or the Companys auditors, requires the audit committee to pre-approve
annually various audit and non-audit services that may be performed by the Companys auditors.
In addition, the audit committee limited the aggregate amount of fees the Companys auditors
may receive during 2004 for non-audit services in certain categories.

The
  Companys Controller reviews all management requests to engage the Companys
  auditors to provide services and approves the request if the requested services
  are of the type pre-approved by the audit committee. The Company informs the
  audit committee of these approvals at least quarterly. Services of the type
  not pre-approved by the audit committee require pre-approval by the audit committee
  on a case-by-case basis. The audit committee is not permitted to approve the
  engagement of the Companys auditors for any services that fall into a
  category of services that is not permitted by applicable law or if the services
  would be inconsistent with maintaining the auditors independence.

44

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**PART
  III**

|**ITEM
      17.** | **FINANCIAL
      STATEMENTS**
|------------------ | ------------------------------

The Company
has responded to Item 18.

|**ITEM
      18.** | **FINANCIAL
      STATEMENTS**
|------------------ | ------------------------------

See
pages F-1 to F-28 incorporated herein.

|**ITEM
      19.** | **EXHIBITS**
|------------------ | ------------

|1    | Articles of Association
      (incorporated by reference to Exhibit 2.5 of the Companys annual report
      on Form 20-F for the year ended December 31, 2000)                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                   
|4.1  | Form of Indemnification
      Agreement between the Company and its officers and directors (Incorporated
      by reference to exhibit 4.1 of the Companys annual report on Form
      20-F for the year ended December 31, 2001)
|     |                                                                                                                                                                                                                                   
|4.2  | Agreement and Plan
      of Merger by and among Check Point Software Technologies Ltd., Check Point
      Software Technologies, Inc., Zanzibar Acquisition, L.L.C., and Zone Labs,
      Inc., dated as of December 15, 2003     
|     |                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                   
|8    | List of subsidiaries
      (incorporated by reference to Item 4  Information on the Company
       Organizational Structure in this Annual Report on Form 20-F)                                                               
|     |                                                                                                                                                                                                                                   
|10   | Consent of Kost
      Forer Gabbay & Kasierer, a member of Ernst & Young Global                                                                                                                                                   
|     |                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                   
|12.1 | Certification of
      the Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley
      Act of 2002                                                                                                                       
|     |                                                                                                                                                                                                                                   
|12.2 | Certification of
      the Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley
      Act of 2002                                                                                                                       
|     |                                                                                                                                                                                                                                   
|13   | Certification pursuant
      to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     

45

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CHECK POINT
  SOFTWARE TECHNOLOGIES LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED
  FINANCIAL STATEMENTS

AS OF DECEMBER
  31, 2003

IN U.S. DOLLARS

INDEX

|                                                    | Page            
|--------------------------------------------------- | ----------------
|                                                    |                 
|Report
      of Independent Auditors                | F-2             
|                                                    |                 
|Consolidated
      Balance Sheets                   | F-3             
|                                                    |                 
|Consolidated
      Statements of Income             | F-4             
|                                                    |                 
|Statements
      of Changes in Shareholders Equity | F-5             
|                                                    |                 
|Consolidated
      Statements of Cash Flows         | F-6             
|                                                    |                 
|Notes
      to Consolidated Financial Statements    | F-7
      - F-28

---

---

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|ERNST &YOUNG | 
|------------ | 

REPORT OF INDEPENDENT AUDITORS

To the Shareholders
  of

CHECK POINT
  SOFTWARE TECHNOLOGIES LTD.

We
  have audited the accompanying consolidated balance sheets of Check Point Software
  Technologies Ltd. and its subsidiaries as of December 31, 2002 and 2003, and
  the related consolidated statements of income, changes in shareholders
  equity and cash flows for each of the three years in the period ended December
  31, 2003. These financial statements are the responsibility of Check Point Software
  Technologies Ltd.s management. Our responsibility is to express an opinion
  on these financial statements based on our audits.

We
  conducted our audits in accordance with auditing standards generally accepted
  in the United States. Those standards require that we plan and perform the audit
  to obtain reasonable assurance about whether the financial statements are free
  of material misstatement. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements. An audit
  also includes assessing the accounting principles used and significant estimates
  made by management as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.

In
  our opinion, the consolidated financial statements referred to above present
  fairly, in all material respects, the consolidated financial position of Check
  Point Software Technologies Ltd. and its subsidiaries as of December 31,
  2002 and 2003, and the consolidated results of their operations and cash flows
  for each of the three years in the period ended December 31, 2003, in conformity
  with accounting principles generally accepted in the United States.



|Tel-Aviv,
      Israel | KOST
      FORER GABBAY & KASIERER    
|---------------------- | --------------------------------------
|January
      20, 2004 | A Member of Ernst
      & Young Global

F- 2

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|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**                  
|---------------------------------------------------------------------------------------------
|**CONSOLIDATED
      BALANCE SHEETS** **U.S. dollars
      in thousands (except share data)**

|                                                                                     | December 31,
|------------------------------------------------------------------------------------ | ------------
|
|ASSETS                                                                               |             
|                                                                                    
|Current assets:                                                                     
|Cash
      and cash equivalents                                                      | $           
|Short-term
      bank deposits                                                       |             
|Marketable
      securities                                                          |             
|Trade
      receivables (net of allowances for doubtful accounts and product        
|returns of  $ 8,722 and $ 7,400 for the years 2002 and 2003, respectively)           |             
|Other
      accounts receivable                                                      |             
|                                                                                     |             
|Total current
      assets                                                           |             
|                                                                                     |             
|Long-term
      assets:                                                             
|Long-term
      investments                                                          |             
|Other
      long-term assets                                                         |             
|Property
      and equipment, net                                                    |             
|Severance
      pay fund                                                             |             
|Deferred
      tax asset                                                             |             
|                                                                                     |             
|                                                                                     |             
|                                                                                     |             
|Total assets                                                                         | $           
|                                                                                     |             
|LIABILITIES
      AND SHAREHOLDERS EQUITY                                          
|Current liabilities:                                                                
|Trade
      payables                                                                 | $           
|Employees
      and payroll accruals                                                 |             
|Deferred
      revenues                                                              |             
|Accrued
      expenses and other liabilities                                         |             
|                                                                                     |             
|Total current
      liabilities                                                      |             
|                                                                                     |             
|Accrued severance
      pay                                                          |             
|                                                                                     |             
|Shareholders
      equity:                                                         
|Share
      capital -                                                               
|Authorized:
      500,000,000 Ordinary shares of NIS 0.01 par value; 10 Deferred    
|shares
      of NIS 1 par value; 5,000,000 Preferred shares of NIS 0.01 par value as
|of
      December 31, 2002 and 2003;                                                
|Issued
      and outstanding: 245,908,827 and 249,276,058 Ordinary shares as of     
|December
      31, 2002 and 2003, respectively; 1 Deferred share and no Preferred   
|shares
      as of December 31, 2002 and 2003                                        |             
|Additional
      paid-in capital                                                     |             
|Accumulated
      other comprehensive income (loss)                                  |             
|Retained
      earnings                                                              |             
|                                                                                     |             
|Total shareholders
      equity                                                     |             
|                                                                                     |             
|Total liabilities
      and shareholders equity                                     | $           
|                                                                                     |             

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

F- 3

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|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**                            
|-------------------------------------------------------------------------------------------------------
|**CONSOLIDATED
      STATEMENTS OF INCOME** **U.S. dollars
      in thousands (except per share data)**

|                                              | Year ended
      December 31,
|--------------------------------------------- | -----------------------------
|
|Revenues:                                     |                              
|Product
      and licenses                    | $                            
|Software
      subscriptions                  |                              
|Support,
      training and consulting        |                              
|                                              |                              
|Total revenues                                |                              
|                                              |                              
|Operating
      expenses:                    
|Cost
      of revenues                        |                              
|Research
      and development                |                              
|Selling
      and marketing                   |                              
|General
      and administrative              |                              
|                                              |                              
|Total operating
      expenses                |                              
|                                              |                              
|Operating
      income                        |                              
|Financial
      income, net                   |                              
|                                              |                              
|Income before
      taxes on income           |                              
|Taxes on
      income                         |                              
|                                              |                              
|Net income                                    | $                            
|                                              |                              
|Net earnings
      per share:                
|                                              |                              
|Basic
      net earnings per Ordinary share   | $                            
|                                              |                              
|Diluted
      net earnings per Ordinary share | $                            
|                                              |                              

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

F- 4

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---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**                              
|---------------------------------------------------------------------------------------------------------
|**STATEMENTS
      OF CHANGES IN SHAREHOLDERS EQUITY** **U.S. dollars in thousands (except share data)**

|                                                            | Share
      capital | Additional
      paid-in
      capital | Accumulated
      other
      comprehensive
      income (loss) | Retained
      earnings | Total
      comprehensive
      Income | Total
      shareholders
      equity
|----------------------------------------------------------- | ------------------- | -------------------------------------- | --------------------------------------------------------------- | ----------------------- | -------------------------------------- | --------------------------------------
|Balance as
      of January 1, 2001                         | $                   | 723                                    |                                                                 | $                       | 102,303                                |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Tax
      benefit related to exercise of stock options      |                     | -                                      |                                                                 |                         | 5,345                                  |                                       
|Issuance
      of shares upon exercise of options and stock
|purchase
      plan (7,395,667 Ordinary shares), net        |                     | 12                                     |                                                                 |                         | 37,724                                 |                                       
|Purchase
      of stock dividend fractional shares          |                     | -                                      |                                                                 |                         | (1,465                                 | )                                     
|Comprehensive
      income -                               
|Unrealized
      gains on hedging derivative instruments    |                     | -                                      |                                                                 |                         | -                                      |                                       
|Net
      income                                            |                     | -                                      |                                                                 |                         | -                                      |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Total
      comprehensive income                            |                     |                                        |                                                                 |                         |                                        |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Balance as
      of December 31, 2001                       |                     | 735                                    |                                                                 |                         | 143,907                                |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Tax
      benefit related to exercise of stock options      |                     | -                                      |                                                                 |                         | 4,597                                  |                                       
|Issuance
      of shares upon exercise of options and stock
|purchase
      plan  (3,084,806 Ordinary shares), net       |                     | 5                                      |                                                                 |                         | 14,731                                 |                                       
|Comprehensive
      income (loss) -                        
|Realized
      loss on hedging derivative instruments       |                     | -                                      |                                                                 |                         | -                                      |                                       
|Unrealized
      loss on hedging derivative instruments     |                     | -                                      |                                                                 |                         | -                                      |                                       
|Net
      income                                            |                     | -                                      |                                                                 |                         | -                                      |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Total
      comprehensive income                            |                     |                                        |                                                                 |                         |                                        |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Balance as
      of December 31, 2002                       |                     | 740                                    |                                                                 |                         | 163,235                                |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Tax
      benefit related to exercise of stock options      |                     | -                                      |                                                                 |                         | 12,566                                 |                                       
|Issuance
      of shares upon exercise of options and stock
|purchase plan  (3,367,231 Ordinary shares), net             |                     | 7                                      |                                                                 |                         | 17,703                                 |                                       
|Comprehensive
      income -                               
|Realized
      gain on hedging derivative instruments       |                     | -                                      |                                                                 |                         | -                                      |                                       
|Unrealized
      gain on hedging derivative instruments     |                     | -                                      |                                                                 |                         | -                                      |                                       
|Net
      income                                            |                     | -                                      |                                                                 |                         | -                                      |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Total
      comprehensive income                            |                     |                                        |                                                                 |                         |                                        |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       
|Balance as
      of December 31, 2003                       | $                   | 747                                    |                                                                 | $                       | 193,504                                |                                       
|                                                            |                     |                                        |                                                                 |                         |                                        |                                       

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

F- 5

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|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**        
|-----------------------------------------------------------------------------------
|**CONSOLIDATED
      STATEMENTS OF CASH FLOWS** **U.S. dollars
      in thousands**

|                                                                           | Year ended
      December 31,
|-------------------------------------------------------------------------- | -----------------------------
|
|Cash flows
      from operating activities:                                |                              
|Net
      income                                                           | $                            
|Adjustments
      required to reconcile net income to net cash provided by
|operating activities:                                                     
|Depreciation and amortization                                              |                              
|Amortization of marketable securities premium and accretion of            
|discount, net                                                              |                              
|Deferred income taxes, net                                                 |                              
|Decrease in trade receivables, net                                         |                              
|Decrease (increase) in other accounts receivable and long-term            
|assets                                                                     |                              
|Increase (decrease) in trade payables                                      |                              
|Increase (decrease) in employees and payroll accruals                      |                              
|Increase in accrued expenses and other liabilities                         |                              
|Increase (decrease) in deferred revenues                                   |                              
|Tax benefit related to exercise of stock options                           |                              
|Increase in accrued severance pay, net                                     |                              
|Others                                                                     |                              
|                                                                           |                              
|Net cash
      provided by operating activities                            |                              
|                                                                           |                              
|                                                                          
|Cash flows
      from investing activities:                               
|Proceeds
      from short-term bank deposits                               |                              
|Investment
      in short-term bank deposits                               |                              
|Proceeds
      from held-to maturity marketable securities                 |                              
|Investment
      in held-to-maturity marketable securities                 |                              
|Investment
      in long-term bank deposits                                |                              
|Purchase
      of property and equipment                                   |                              
|                                                                           |                              
|Net cash
      used in investing activities                                |                              
|                                                                           |                              
|Cash flows
      from financing activities:                               
|Proceeds from issuance of shares upon exercise of options and stock       
|purchase plan, net of expenses                                             |                              
|Purchase
      of stock dividend fractional shares                         |                              
|                                                                           |                              
|Net cash
      provided by financing activities                            |                              
|                                                                           |                              
|Increase
      (decrease) in cash and cash equivalents                     |                              
|Cash and
      cash equivalents at the beginning of the year               |                              
|                                                                           |                              
|Cash and
      cash equivalents at the end of the year                     | $                            
|                                                                           |                              
|Supplemental
      disclosure of cash flow information:                   
|Cash paid during the year for income taxes                                 | $                            
|                                                                           |                              

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

F- 6

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|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**
|---------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **In U.S. dollars**         

|NOTE
      1:- | GENERAL
|-------------- | -------
|               |        

| | Check Point Software Technologies Ltd. (Check Point Ltd.), an Israeli corporation, and
its subsidiaries (collectively the Company or Check Point), are engaged in
developing, marketing and supporting Internet security solutions for enterprise networks and service
providers.                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In December 2002, a wholly owned subsidiary was established in Singapore in order to manage the Companys
financial assets.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company operates in one reportable segment and its revenues are mainly derived from the sales of
its network security products, packaged and marketed mostly under the VPN-1 product family and related
software subscription, support technical services and training program. The Company sells its software
products worldwide through multiple distribution channels (channel partners) including
distributors, resellers, system integrators, Original Equipment Manufacturers (OEMs)
and Managed Security service Providers (MSPs).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | During 2002 and 2003, approximately 13% of revenues in each year were derived from a single channel
partner, the Companys largest distributor. No channel partner exceeded 10% of the Companys
revenues in 2001.                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In October 2003, the Company announced its plan to buy back its shares for a total amount of up to
$ 200 million. As of December 31, 2003, the plan has not yet been executed.                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES
|-------------- | -------------------------------------
|               |                                      

| | The consolidated financial statements are prepared according to United States generally accepted accounting
principles (U.S. GAAP).
| | -------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                      

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

| | The consolidated
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States. These accounting principles require
      management to make certain estimates, judgments and assumptions. Management
      believes that the estimates, judgments and assumptions upon which it relies,
      are reasonable based upon information available at the time that these estimates,
      judgments and assumptions were made. To the extent that there are material
      differences between these estimates and actual results, the financial statements
      may be affected.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 7

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---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|               |                                              
|-------------- | ---------------------------------------------
|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|               |                                              

| | b. | Financial
      statements in United States dollars:
| | -- | ----------------------------------------------------
| |    |                                                     

| | Most of the Companys revenues are denominated in United States dollars (dollars).
In addition, a substantial portion of the Companys costs is incurred in dollars. The Companys
management believes that the dollar is the primary currency of the economic environment in which
Check Point Ltd. and each of its subsidiaries operate. Thus, the dollar is their functional and reporting
currency. Accordingly, 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 statements of income as financial income or expenses, as
appropriate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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

| | The consolidated financial statements include the accounts of Check Point Ltd. and its subsidiaries.
Intercompany transactions and balances have been eliminated upon consolidation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                     

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

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

| | e. | Short and long-term
      bank deposits:
| | -- | ----------------------------------------
| |    |                                         

| | Bank deposits with maturities of more than three months but less than one year are included in short-term
bank deposits. Bank deposits with maturities of more than one year are included in long-term investments.
Deposits are presented at cost, while related accrued interest is included in other receivables. The
deposits are in U.S. dollars and bear annual interest at rates ranging from 3%-3.6%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                              

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

| | The Company
      accounts for investments in marketable securities in accordance with Statement
      of Financial Accounting Standard No. 115, Accounting for Certain Investments
      in Debt and Equity Securities (SFAS No. 115).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 8

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|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | Management determines the appropriate classification of its investments in government and corporate
marketable debt securities at the time of purchase and reevaluates such determinations at each balance
sheet date. Debt securities are classified as held-to-maturity as the Company has the positive intent
and ability to hold the securities to maturity and are stated at amortized cost. The amortized cost
of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization, interest and declines in value determined to be other than temporary
are included in financial income, net. Interest income resulting from investments in structured notes
that are classified as held to maturity is accounted for under the provision of Emerging Issue Task
Force No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured
Notes (EITF No. 96-12). Under EITF No. 96-12, the retrospective interest method
should be used for recognizing interest income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

| | Property and equipment are stated at cost less accumulated depreciation using the straight-line method
over the estimated useful lives of the assets, ranging from two to ten years. Leasehold improvements
are amortized by the straight-line method over the term of the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Companys long-lived assets are reviewed for impairment in accordance with Statement of Financial
Accounting Standard No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144) whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured
by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected
to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds its fair value. During
2003, impairment in the amount of $ 440 with respect to the relocation of the U.S. subsidiarys
offices, was noted.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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

| | Research
      and development costs, are charged to the statement of income as incurred.
      Statement of Financial Accounting Standard 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. Costs incurred by the
      Company between completion of the working models and the point at which
      the products are ready for general release have been insignificant. Therefore,
      all research and development costs have been expensed.       

F- 9

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | i. | Revenue recognition:
| | -- | --------------------
| |    |                     

| | The Company
      derives its revenues from license fees for its products, software subscriptions,
      support, consulting and training programs. The Company sells its products
      primarily through distributors, resellers, OEMs, system integrators and
      MSPs, all of whom are considered end-users.                                                                                                                                                                                                                                                                                                                                                                                                 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company
      accounts for software sales in accordance with Statement of Position No.
      97-2, Software Revenue Recognition (SOP No. 97-2), as
      amended. In addition, the Company has adopted Statement of Position No.
      98-9, Modification of SOP No. 97-2, Software Revenue Recognition with
      Respect to Certain Transactions, (SOP No. 98-9). SOP No.
      98-9 requires that revenue be recognized under the residual method
      when Vendor Specific Objective Evidence (VSOE) of Fair Value
      exists for all undelivered elements and VSOE does not exist for all of the
      delivered elements.                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Revenue from
      license fees is recognized when persuasive evidence of an arrangement exists,
      delivery of the product has occurred, the fee is fixed or determinable,
      and collectability is probable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Software
      subscription, support, consulting and training program revenues included
      in multiple-element arrangements are deferred and either recognized on a
      straight-line basis over the term of the software subscription and support
      agreement or when services are performed. Revenues earned on software arrangements
      involving multiple-elements are allocated to each element based on the its
      VSOE of fair value. The VSOE of fair value of the undelivered elements (software
      subscription, support, consulting services and training) is generally determined
      based on the price charged for the undelivered element when sold separately
      or renewed.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company
      maintains certain provisions for product returns, in accordance with Statement
      of Financial Accounting Standard No. 48, Revenue Recognition When
      Right of Return Exists, based on its experience with historical sales
      returns, analysis of credit memo data and other known factors. Such provisions
      amounted to $ 3,598 and $ 2,098 as of December 31, 2002 and 2003,
      respectively.                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company
      considers arrangements regarding certain channel partners with payment terms
      extending beyond customary payment terms not to be fixed or determinable.
      If the fee is considered to be not fixed or determinable, revenue is deferred
      and recognized when payments become due from the customer or are actually
      collected, providing that all other revenue recognition criteria have been
      met.                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Deferred
      revenue includes unearned amounts received under software subscription and
      support contracts, and amounts received from customers but not yet recognized
      as revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F- 10

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**      
|---------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****U.S. dollars
      in thousands**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | j. | Severance pay:
| | -- | --------------
| |    |               

| | The Companys liability for severance pay is calculated pursuant to Israeli severance pay law
based on the most recent salary of the employees multiplied by the number of years of employment
as of the balance sheet date. The Company records as expenses the net increase in its funded or unfunded
severance liability. Employees are entitled to one months salary for each year of employment,
or a portion thereof. The Companys liability is fully provided by monthly payments deposited
with insurers and by a reserve established by the Company to cover the portion of this liability
not covered by the Companys deposits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may
be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or
labor agreements. The value of the deposited funds is based on the cash surrendered value of these
policies, and includes immaterial profits.                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Severance expenses for the years ended December 31, 2001, 2002 and 2003, were $ 1,997,  $ 1,741
and $ 1,437, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | k. | Employee benefit plan:                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                
| |    | The Company has a 401(K) defined contribution plan covering certain employees in the U.S. All eligible
employees may elect to contribute up to 50%, but no greater than $ 12 per year, of their annual
compensation to the plan through salary deferrals, subject to IRS limits. From January 1, 1996
(inception) to December 31, 2003, the Company made no matching contributions to the plan.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                
| | l. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                

| | The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes (SFAS No. 109). SFAS No. 109 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | m. | Advertising expenses:
| | -- | ---------------------
| |    |                      

| | Advertising
      costs are expensed as incurred. Advertising expenses for the years ended
      2001, 2002 and 2003, were $ 15,516, $ 11,502 and $ 8,371, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 11

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | n. | Concentrations of credit risk:
| | -- | ------------------------------
| |    |                               

| | Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade
receivables and long-term bank deposits. The majority of the Companys cash and cash equivalents,
short-term bank deposits and the long-term bank deposits are invested in dollar and dollar-linked
investments, and are deposited in major banks in the U.S. and Europe. Such deposits in the U.S may
be in excess of insured limits and are not insured in other jurisdictions. Management believes that
the financial institutions that hold the Companys investments are financially sound and, accordingly,
minimal credit risk exists with respect to these investments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Companys marketable securities include investments in government and corporate debentures
and structured notes of issuers that are considered by management to be financially sound. The Companys
investments in debt securities are diversified among high-quality credit securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Companys trade receivables are geographically diversified and derived from sales to channel
partners mainly in the United States, Europe and Asia. The Company performs ongoing credit evaluations
of its partners. The allowance for doubtful accounts is mainly composed of specific debts that are
doubtful of collection amounting to $ 5,124 and $ 5,302 as of December 31, 2002 and 2003,
respectively.                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | o. | Derivatives and hedging:
| | -- | ------------------------
| |    |                         

| | The Company
      accounts for derivatives and hedging based on Statement of Financial Accounting
      Standard No. 133, Accounting for Derivative Instruments and Hedging
      Activities (SFAS No. 133). SFAS No. 133 requires the Company
      to recognize all derivatives on the balance sheet at fair value. If the
      derivatives meet the definition of a hedge and is so designated, depending
      on the nature of the hedge, changes in the fair value of derivatives will
      either be offset against the change in fair value of the hedged assets,
      liabilities, or firm commitments through earnings, or recognized in other
      comprehensive income until the hedged item is recognized in earnings. The
      ineffective portion of a derivatives change in fair value is recognized
      in earnings. During 2001, 2002 and 2003 there were no gains or losses recognized
      in earning for hedge ineffectiveness.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 12

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES 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.)
|-------------- | ---------------------------------------------
|               |                                              

| | The Company hedges the exposure of assets and anticipated revenues denominated in the Japanese Yen
as well as anticipated expenses denominated in Euros with forward and option contracts. To protect
against the risk of overall changes in cash flows resulting from export sales over the next year,
the Company has instituted a foreign currency cash flow hedging program with zero-cost collar contracts.
The net gains (losses) recognized in revenues during 2001, 2002 and 2003 were $ 1,484, $ 1,369
and $ (173), respectively. As of December 31, 2003, the Company expects to reclassify during
the first quarter of 2004 an amount of $10 of unrealized losses on hedging derivative instruments
from accumulated other comprehensive loss to revenues. During 2003, the Company entered into a foreign
currency cash flow hedging program with option contracts designated to hedge expenses in Euro. The
net gain which offset expenses during 2003 amounted to $ 655. Also, the Company entered into forward
exchange contracts designated to hedge the fair value of certain foreign currency denominated partner
balances and accrued liabilities. The net gains (losses) recognized in earnings during 2001, 2002
and 2003, representing the foreign exchange forward contract gains (losses), were $ 1,403, $ (451)
and $ 166, respectively. Those gains (losses) were presented within financial income (expenses).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | In 2001, the Company has entered into forward rate agreements (FRA,) in the amount of $125
million that effectively convert a portion of its floating rate investments to a fixed rate basis
for a 12 month period beginning one year after the date of the agreements, thus reducing the impact
of the interest rate changes on future interest income. The agreements were executed in November
2002, resulting in a total gain of approximately $3.4 million presented in the statement of income
as financial income. In August 2003, the company has entered into a similar FRA agreement in the
amount of $25 million. As of December 31, 2003, the Company expects to reclassify during the following
year an amount of $168 of unrealized gain on this agreement from accumulated other comprehensive
loss to financial income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | As of December 31, 2003, the Companys management believed that since the abovementioned activities
were transacted with well-established institutions, the liabilities owed to the Company will be fulfilled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | p. | Basic and diluted net earnings per share:
| | -- | -----------------------------------------
| |    |                                          

| | Basic net
      earnings per share is computed based on the weighted average number of Ordinary
      shares outstanding during each year. Diluted net earnings per share is computed
      based on the weighted average number of Ordinary shares outstanding during
      each year, plus dilutive potential Ordinary shares considered outstanding
      during the year, in accordance with Statement of Financial Accounting Standard
      No. 128, Earnings Per Share (SFAS No. 128).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The total
      weighted average number of shares related to the outstanding options excluded
      from the calculations of diluted net earnings per share, since they would
      have an anti-dilutive effect, were 2,658,141, 7,448,419 and 8,859,208 for
      2001, 2002 and 2003, respectively.                                                                                                                                                                                           

F- 13

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES 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. | Accounting for stock-based compensation:
| | -- | ----------------------------------------
| |    |                                         

| | The Company has elected to follow Accounting Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees (APB No. 25) and FASB. Interpretation No. 44 Accounting
for Certain Transactions Involving Stock Compensation (FIN No. 44) in accounting
for its employee stock option plans. Under APB No. 25, when the exercise price of the Companys
stock options is less than the market price of the underlying shares on the date of grant, compensation
expense is recognized.                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation - transition and disclosure (SFAS No. 148),
which amended certain provision of Statement of Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) to provide alternative methods of transition
for an entity that voluntarily changes to the fair value based method of accounting for stock-based
employee compensation, effective as of the beginning of 2003. The Company continues to apply the
provisions of APB No. 25, in accounting for stock-based compensation.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Pro forma information regarding the Companys net income and net earnings per share is required
by SFAS No 123 and has been determined as if the Company had accounted for its employee stock options
under the fair value method prescribed by SFAS No. 123.                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The fair value for options granted in 2001, 2002 and 2003 is amortized over their vesting period and
is estimated at the date of grant using a Black-Scholes options pricing model with the following
weighted average assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|2001 | 2002                                           | 2003
|---- | ---------------------------------------------- | ----
|     | Expected
      volatility                      |     
|     | Risk-free
      interest                       |     
|     | Dividend
      yield                           |     
|     | Expected
      life after the option is vested
|     | (years)                                        |     

| |                                               | 
| | --------------------------------------------- | 
| | Expected
      volatility                     | 
| | Risk-free
      interest                      | 
| | Dividend
      yield                          | 
| | Expected life from
      vesting date (years) | 

F- 14

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**                               
|----------------------------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands (except per share data)**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | The following table illustrates the effect on net income and net earnings per share, assuming that
the Company had applied the fair value recognition provision of SFAS No. 123 on its stock-based employee
compensation:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                          

| |                                                                                                                                                 | December
      31,
| | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------
|
| | Net income
      as reported                                                                                                                    | $                 
| |                                                                                                                                                 |                   
| | Deduct: Stock-based
      compensation expense
         determined under fair value method for all
          awards, net of related tax effects | $                 
| |                                                                                                                                                 |                   
| | Pro forma
      net income                                                                                                                      | $                 
| |                                                                                                                                                 |                   
| | Net earnings
      per share:                                                                                                                  
| | Basic
      net earnings per Ordinary shares, as
          reported                                                                             | $                 
| |                                                                                                                                                 |                   
| | Diluted
      net earnings per Ordinary shares, as
           reported                                                                          | $                 
| |                                                                                                                                                 |                   
| | Basic
      pro forma net earning per Ordinary shares                                                                                           | $                 
| |                                                                                                                                                 |                   
| | Diluted
      pro forma net earning per Ordinary
           shares                                                                              | $                 
| |                                                                                                                                                 |                   

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

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

| | 1. | The carrying
      amount of cash and cash equivalents, short-term bank deposits, trade receivables
      and trade payables approximates their fair values due to the short-term
      maturities of these instruments.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                         
| | 2. | The fair
      value of short and long term marketable securities structured notes and
      bank deposits with quoted market prices is based on quoted market prices
      (see Notes 3 and 4).                        
| |    |                                                                                                                                                                                                                         
| | 3. | The
      carrying amount of the Companys long-term bank deposits is estimated
      by discounting the future cash flows using the interest rates for deposits
      of similar terms and maturities (see Note 4).    
| |    |                                                                                                                                                                                                                         
| | 4. | The fair
      value of derivative instruments is estimated by obtaining quotes from brokers.                                                                                                                           

F- 15

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)
|-------------- | ---------------------------------------------
|               |                                              

| | s. | Reclassification:
| | -- | -----------------
| |    |                  

| | The Company has reclassified certain amounts from 2002 to conform to the 2003 presentation. The reclassification
had no effect on previously reported net loss, shareholders equity or cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                    

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

| | In January
      2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
      Entities (FIN 46). The objective of FIN 46 is to improve
      financial reporting by companies involved with variable interest entities.
      A variable interest entity is a corporation, partnership, trust, or
      any other legal structure used for business purposes that either (a)
      does not have equity investors with voting rights or (b) has equity investors that
      do not provide sufficient financial resources for the entity to support
      its activities.                                                                                                                                                                                                                                                                                                                                                            
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | FIN 46 requires
      a variable interest entity to be consolidated by a company if that company is
      subject to a majority of the risk of loss from the variable interest entitys
      activities or entitled to receive a majority of the entitys residual
      returns or both. FIN 46 also requires disclosures about variable interest
      entities that the company is not required to consolidate, but in which it
      has a significant variable interest. The consolidation requirements of FIN 46
      apply in the first fiscal year or interim period ending after March
      15, 2004. Certain of the disclosure requirements apply in all financial statements
      issued after January 31, 2003, regardless of when the variable interest
      entity was established. As of December 31, 2003, the Company does not
      expect the adoption of FIN 46 to have a material impact on its consolidated
      financial statements.

F- 16

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|               |                            
|-------------- | ---------------------------
|NOTE
      3:- | MARKETABLE
      SECURITIES
|               |                            

| |                                | December
      31,
| | ------------------------------ | ------------------
|
|
| | Government
      and corporate |                   
| | debentures - Fixed            
| | interest
      rate            | $                 
| | Government
      and corporate
| | debentures - Floating         
| | interest rate (**)             |                   
| | Mortgage
      and Asset      
| | Backed Securities (*)          |                   
| | Auction rate securities        |                   
| | Money Market                  
| | Instruments                    |                   
| |                                |                   
| |                                | $                 
| |                                |                   

| | (*)  | The expected maturities dates may differ from the contractual maturities because debtors may have the
right to call or prepay obligations without penalties.                  
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                               
| | (**) | As of December 31, 2003, the Company holds investments in structured notes in the amount of $202,646.
The structured notes include mainly inverse floaters and range accruals.
| |      |                                                                                                                                                                               

| | Ranges accruals are bonds where the coupon is paid only if a specified interest rate stays within a
pre-established range, otherwise the bond pays 0%. Inverse floaters are bonds where the coupon varies
in accordance with changes in specified interest rates or indices (for example, LIBOR).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                  

| | The
      unrealized gains on structured notes amounted to $ 2,241.
| | -------------------------------------------------------------------
| |                                                                    

|NOTE
      4:- | LONG-TERM
      INVESTMENTS
|-------------- | ---------------------------
|               |                            

| | Long-term investments due within one to five years, are as follows:
| | -------------------------------------------------------------------
| |                                                                    

| |                                                     | December
      31,
| | --------------------------------------------------- | ------------------
|
| | Government
      and corporate debentures (a)       | $                 
| | Bank deposits
      (a)                             |                   
| | Investments
      in a privately - held company (b) |                   
| |                                                     |                   
| |                                                     | $                 
| |                                                     |                   

F- 17

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**       
|----------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars
      in thousands**

|NOTE
      4:- | LONG-TERM
      INVESTMENTS (Cont.)
|-------------- | -----------------------------------
|               |                                    

| | (a) | Composed as follows:
| | --- | --------------------
| |     |                     

| |                                | December
      31,
| | ------------------------------ | ------------------
|
|
| | Government
      and corporate |                   
| | debentures  Fixed            
| | interest
      rate            | $                 
| | Government
      and corporate
| | debentures
       Floating   
| | interest rate                  |                   
| | Mortgage
      and Asset      
| | Backed
      Securities (*)    |                   
| | Deposits                       |                   
| |                                |                   
| |                                |                   
| |                                | $                 
| |                                |                   

| | (*) | The expected maturities may differ from the contractual maturities because debtors may have the right
to call or prepay obligations without penalties.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                       
| | (b) | The investment in a privately held company is stated at cost since the Company does not have a significant
influence over that private company.       
| |     |                                                                                                                                                       

| | NOTE 5:- | PROPERTY AND EQUIPMENT, NET
| | -------- | ---------------------------
| |          |                            

| |                                          | December
      31,
| | ---------------------------------------- | ------------------
|
| | Cost:                                    |                   
| | Computers
      and peripheral equipment | $                 
| | Office
      furniture and equipment     |                   
| | Leasehold
      improvement and other    |                   
| |                                          |                   
| |                                          |                   
| | Accumulated
      depreciation           |                   
| |                                          |                   
| | Depreciated
      cost                   | $                 
| |                                          |                   

| | Depreciation and amortization expenses amounted to approximately $ 8,949, $ 7,390 and $ 6,030
for 2001, 2002 and 2003, respectively.                                                                                                
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                     
| | During 2003, the US subsidiary of the Company recorded a reduction of approximately $ 4,000 to the
cost and accumulated depreciation of fully depreciated equipment no longer in use, primarily due
to the relocation of facilities.
| |                                                                                                                                                                                                                                     

F- 18

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      6:- | ACCRUED
      EXPENSES AND OTHER LIABILITIES
|-------------- | --------------------------------------------
|               |                                             

| |                                  | December
      31,
| | -------------------------------- | ------------------
|
| | Income taxes
      payable       | $                 
| | Marketing
      expenses payable |                   
| | Others                           |                   
| |                                  |                   
| |                                  | $                 
| |                                  |                   

|               |                                             
|-------------- | --------------------------------------------
|NOTE
      7:- | COMMITMENTS
      AND CONTINGENT LIABILITIES
|               |                                             

| | a. | Lease commitments:
| | -- | ------------------
| |    |                   

| | The facilities of the Company are rented under operating lease agreements that expire on various dates.     
| | ------------------------------------------------------------------------------------------------------------
| |                                                                                                             
| | Aggregate minimum lease commitments under non-cancelable operating leases as of December 31, are
as follows:
| |                                                                                                             

| | 2004 | $ | 5,258  | 
| | ---- | - | ------ | 
| | 2005 |   | 3,733  | 
| | 2006 |   | 2,020  | 
| | 2007 |   | 317    | 
| | 2008 |   | 168    | 
| |      |   |       
| |      | $ | 11,496 | 
| |      |   |       

| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Rent expenses
      for the years ended December 31, 2001, 2002 and 2003, were $ 6,842,
      $ 7,289 and $ 5,587, respectively.
| |                                                                                                                                 

| | b. | Litigation:
| | -- | -----------
| |    |            

| | In 1996,
      Checkpoint Systems, Inc. (CSI) a manufacturer of theft prevention
      devices for retail stores has taken legal actions in respect of trademark
      infringement and unfair competition against the Company. In 2002 a trademark
      opposition was filed by CSI with the Patent and Trademark Office. In February
      2003 the respective parties entered into an agreement that settled all of
      the disputes by definitively setting forth each companys trademark
      description. The agreement permits both parties to use the mark Check
      Point and to seek registration consistent with the descriptive aspects
      of their respective businesses. As a result, the Company reversed the related
      provision.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 19

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

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

| | Beginning on August 29, 2003, the Company received a number of class action complaints filed in the
United States District Court for the Southern District of New York by holders of the Company Ordinary
shares, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the Exchange
Act), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On November
20, 2003, the court consolidated all of the complaints into one action and appointed lead plaintiff.
On January 14, 2004, lead plaintiff filed a Consolidated Amended Complaint, purporting to represent
a putative class of all purchasers of the Company Ordinary shares between July 10, 2001 and April
4, 2002. The complaint generally alleges that Check Point and certain of its senior officers made
misrepresentations and omissions regarding, among other things, the Companys sales, revenue,
and future prospects. The Company has retained experienced counsel and is currently moving to dismiss
the complaint pursuant to Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure and
Section 21D(b)(3) of the Exchange Act. The Company disputes the allegations of wrongdoing and intends
to defend the matter vigorously. Accordingly, the Companys management believes that applicable
insurance as well as a provision in the financial statements as of December 31, 2003, are adequate
to cover probable costs arising from this matter.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|NOTE
      8:- | TAXES
      ON INCOME
|-------------- | ---------------------
|               |                      

| | a. | Israeli taxation:
| | -- | -----------------
| |    |                  

| | 1. | Measurement
      of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985
      (the Israeli law):                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Under the
      Israeli law, results for tax purposes are measured in real terms, in accordance
      with the changes in the Israeli Consumer Price Index (Israeli CPI),
      or in the exchange rate of the dollar for a foreign investors
      company. Until 2001, results for tax purposes were measured in terms
      of earnings in NIS after certain adjustments for increases in the Israeli
      CPI. Beginning January 1, 2002, the basis for remeasurment is the changes
      in the exchange rate of the U.S. dollar.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2. | Tax benefits
      under the Law for the Encouragement of Capital Investments, 1959 (the Law):                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Practically
      all of Check Point Ltd.s production facilities have been granted the
      status of Approved Enterprise, under the Law, in five investment
      programs (the Programs).                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In
      accordance with the Law, Check Point Ltd. has
      chosen to enjoy Alternative plan benefits. Accordingly, Check
      Point Ltd.s income attributed to the Approved Enterprise
      is tax exempt for a period of two years and is subject to a reduced corporate
      tax rate of 10% - 25% for an additional period of eight years, based on
      the percentage of foreign investment in Check Point Ltd. The abovementioned
      tax benefits are scheduled to gradually expire from 2005 through 2013.             

F- 20

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      8:- | TAXES
      ON INCOME (Cont.)
|-------------- | -----------------------------
|               |                              

| |  | The duration of tax benefits, for each of the Programs is subject to limitations of the earlier of
12 years from commencement of investment, or 14 years from receipt of approval, as an Approved
Enterprise under the Law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Tax-exempt income attributable to the Approved Enterprise cannot be distributed to shareholders
without subjecting the Company to taxes except upon complete liquidation of the Company. Out of the
Companys retained earnings as of December 31, 2003 approximately $ 461,000 are tax-exempt.
If such retained tax-exempt income is distributed in a manner other than upon the complete liquidation
of the Company, it would be taxed at the reduced corporate tax rate applicable to such profits (between
10%-25%) and an income tax liability of up to approximately $ 115,000 would be incurred as of December
31, 2003. The Company currently intends to reinvest the amount of its tax-exempt income and not to
distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on
income attributable to the Companys Approved Enterprise.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | The entitlement to the above benefits is conditional upon the Companys fulfilling the conditions
stipulated by the Law, regulations published thereunder and the certificates of approval for the
specific investments in approved enterprises.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                 

| |    | Should Check
      Point Ltd. fail to meet such requirements in the future, income attributable
      to its Approved Enterprise programs could be subject to the
      statutory Israeli corporate tax rate of 36%, and the Company could be required
      to refund a portion of the tax benefits already received, with respect to
      such programs.                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Income from
      sources other than the Approved Enterprise is subject to tax
      at regular Israeli corporate tax rate of 36%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 3. | The Israeli
      company has final tax assessments through the year 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 4. | On January
      1, 2003, a comprehensive tax reform took effect in Israel. Pursuant to the
      reform, resident companies are subject to Israeli tax on income accrued
      or derived in Israel or abroad. In addition, the concept of controlled
      foreign corporation was introduced, according to which an Israeli
      company may become subject to Israeli taxes on certain income of a non-Israeli
      subsidiary if the subsidiarys primary source of income is passive
      income (such as interest, dividends, royalties, rental income or capital
      gains). The tax reform also substantially changed the system of taxation
      of capital gains.

F- 21

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      8:- | TAXES
      ON INCOME (Cont.)
|-------------- | -----------------------------
|               |                              

| | b. | Deferred tax assets:
| | -- | --------------------
| |    |                     

| | Deferred tax assets 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.
As of December 31, 2002 and 2003, the Companys deferred taxes were in respect of the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                

| |                                                                     | December
      31,
| | ------------------------------------------------------------------- | ------------------
|
| | U.S. carryforward
      tax deductions                              | $                 
| | Accrued vacation,
      severance pay and property and equipment    |                   
| |                                                                     |                   
| | Net deferred
      tax assets before valuation allowance            |                   
| | Valuation
      allowance                                           |                   
| |                                                                     |                   
| | Net deferred
      tax assets (presented in other long term assets) | $                 
| |                                                                     |                   
| | Domestic                                                            | $                 
| | Foreign                                                             |                   
| |                                                                     |                   
| |                                                                     | $                 
| |                                                                     |                   

| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The subsidiary
      in the U.S. has provided valuation allowances in respect of deferred tax
      assets resulting from tax benefits related to employee stock option exercises,
      which will be credited to additional paid-in capital when realized. Management
      currently believes that it is more likely than not that those deferred tax
      deductions will not be realized in the foreseeable future.
| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Through December
      31, 2003, the U.S. subsidiary had a U.S. federal loss carryforward of approximately
      $ 690,000 resulting from tax benefits related to employees stock option
      exercises that can be carried forward and offset against taxable income
      for 15 to 20 years, expiring between 2010 - 2023.                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Utilization
      of U.S. loss carryforwards may be subject to substantial annual limitation
      due to the change in ownership provisions of the Internal Revenue
      Code of 1986 and similar state provisions. The annual limitations may result
      in the expiration of losses before utilization.                                                                                                          

F- 22

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      8:- | TAXES
      ON INCOME (Cont.)
|-------------- | -----------------------------
|               |                              

| | c. | Income before taxes on income is comprised as follows:
| | -- | ------------------------------------------------------
| |    |                                                       

| |          | Year
      ended December 31,
| | -------- | -----------------------------
|
| | Domestic | $                            
| | Foreign  |                              
| |          |                              
| |          | $                            
| |          |                              

| | d. | Income tax expenses are comprised as follows:
| | -- | ---------------------------------------------
| |    |                                              

| |          | Year
      ended December 31,
| | -------- | -----------------------------
|
| | Current  | $                            
| | Deferred |                              
| |          |                              
| |          | $                            
| |          |                              
| | Domestic | $                            
| | Foreign  |                              
| |          |                              
| |          | $                            
| |          |                              

| |    |                                                      
| | -- | -----------------------------------------------------
| | e. | Reconciliation
      of the theoretical tax expenses:
| |    |                                                      

| | A reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory
rate applicable and the actual income tax as reported in the statements of income, is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                       

| |                                                       | Year
      ended December 31,
| | ----------------------------------------------------- | -----------------------------
|
| | Income before
      taxes as reported in the          |                              
| | statements
      of income                            | $                            
| |                                                       |                              
| | Statutory
      tax rate in Israel                    |                              
| |                                                       |                              
| | Increase
      (decrease) in taxes resulting from:   
| | Effect of
      Approved Enterprisestatus (*)       |                              
| | Others, net                                           |                              
| |                                                       |                              
| | Effective
      tax rate                              |                              
| |                                                       |                              
| | (*) Basic
      net earnings per share amounts of the
| | benefit resulting from the Approved                 
| | Enterprise
      status                              | $                            
| |                                                       |                              
| | (*) Diluted
      net earnings per share amounts of  
| | the
      benefit resulting from the                 
| | Approved
      Enterprise status                    | $                            
| |                                                       |                              

F- 23

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      9:- | SHARE
      CAPITAL
|-------------- | -------------------
|               |                    

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

| | 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.                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                        
| | Dividends declared on Ordinary shares will be paid in NIS. Dividends paid to shareholders outside Israel
will be converted into U.S. dollars, on the basis of the exchange rate prevailing at the date of
payment.                                     
| |                                                                                                                                                                                                                                                        
| | On January 18, 2001, the Companys Board of Directors approved a three-for-two stock split in
the form of a stock dividend, effective February 1, 2001. This stock split has been reflected in
the statement of changes in shareholders equity in 2000.
| |                                                                                                                                                                                                                                                        
| | Shareholders otherwise entitled to receive fractional shares because they held a number of old Ordinary
shares that are not evenly divisible by the split number, were paid by cash.                                                                   
| |                                                                                                                                                                                                                                                        
| | All shares, options and earnings per share amounts have been retroactively adjusted for all periods
presented to reflect the stock splits effected as a stock dividend.                                                                                
| |                                                                                                                                                                                                                                                        

| | b. | Deferred share:
| | -- | ---------------
| |    |                

| | The Deferred share is not entitled to any rights other than the right to receive its nominal value
upon liquidation of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                    

| | c. | Employee Stock Purchase Plan (ESPP):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company reserved a total of 6,000,000 shares for issuance under the ESPP. Eligible employees use
up to 15% of their salaries to purchase Ordinary shares but no more than 1,250 shares per participant
on any purchase date. The purchase plan is being implemented by effecting an offering every six months.
The price of an Ordinary share purchased under the purchase plan is equal to 85% of the lower of
the fair market value of the Ordinary share on the subscription date of each offering period, or
on the purchase date.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | During 2001, 2002 and 2003, employees purchased 81,265, 146,291 and 254,889 Ordinary shares at average
prices of $ 46.90, $ 21.08 and $12.29 per share, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                      

| | As
      of December 31, 2003, 4,833,527 Ordinary shares were available for future
      issuance.
| | --------------------------------------------------------------------------------------------------
| |                                                                                                   

| | d. | Stock options:
| | -- | --------------
| |    |               

| | Under the
      Companys 1996 International and U.S. Incentive Employee Stock Option
      Plans (the Plan), options are granted to employees, officers
      and directors at an exercise price equal to at least the fair market value
      at the date of grant and are granted for periods not to exceed seven years.
      Options granted under this plan, generally vest over a period of four to
      five years of employment. Any options that are cancelled or forfeited before
      expiration become available for future grants.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 24

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      9:- | SHARE
      CAPITAL (Cont.)
|-------------- | ---------------------------
|               |                            

| | Under the terms of the Plan, options to purchase 171,210,000 Ordinary shares were reserved for issuance
for the plan.
| | ---------------------------------------------------------------------------------------------------------------------
| |                                                                                                                      
| | As of December 31, 2003, 93,343,000 options were available for future grant under the plan.                          
| |                                                                                                                      
| | A summary of the Companys stock option activity, and related information, is as follows:                            
| |                                                                                                                      

|                               | Options (in
      thousands) | Weighted average
      exercise price
|------------------------------ | ---------------------------- | -------------------------------------
|
|Outstanding
      at beginning |                              | 33,428                               
|of
      year                 
|Granted                        |                              | 2,607                                
|Exercised                      |                              | (7,314                               
|Cancelled                      |                              | (2,244                               
|                               |                              |                                      
|Outstanding
      as of       
|December
      31,             |                              | 26,477                               
|                               |                              |                                      
|Exercisable
      as of       
|December
      31,             |                              | 9,611                                
|                               |                              |                                      

| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The options
      outstanding as of December 31, 2003, have been separated into ranges of
      exercise price, as follows:
| |                                                                                                                            

|Exercise price      | Options
      outstanding at
      December 31,2003(in thousands) | Weighted
      average
      remaining
      contractual life(years) | Weighted
      average
      exerciseprice | Options
      exercisable at
      December 31,
      2003(in thousands) | Weighted
      average
      exercise
      price of
      exercisableoptions
|------------------- | ----------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------------------------ | -----------------------------------------------------------------------------
|
|2.65
       3.19   |                                                                   |                                                                      |                                            | 3,031                                                                    |                                                                              
|3.77
       4.46   |                                                                   |                                                                      |                                            | 1,445                                                                    |                                                                              
|4.56
       9.38   |                                                                   |                                                                      |                                            | 699                                                                      |                                                                              
|9.83
       13.02  |                                                                   |                                                                      |                                            | 9,958                                                                    |                                                                              
|13.33
       17.64 |                                                                   |                                                                      |                                            | 8,378                                                                    |                                                                              
|20.36
       23.60 |                                                                   |                                                                      |                                            | 153                                                                      |                                                                              
|27.22
       30.54 |                                                                   |                                                                      |                                            | 1,816                                                                    |                                                                              
|31.75
       36.72 |                                                                   |                                                                      |                                            | 250                                                                      |                                                                              
|40.09
       44.42 |                                                                   |                                                                      |                                            | 2,100                                                                    |                                                                              
|44.96
       51.21 |                                                                   |                                                                      |                                            | 594                                                                      |                                                                              
|57.59
       65.58 |                                                                   |                                                                      |                                            | 28                                                                       |                                                                              
|68.42
       70.02 |                                                                   |                                                                      |                                            | 398                                                                      |                                                                              
|70.19
       75.08 |                                                                   |                                                                      |                                            | 127                                                                      |                                                                              
|79.79
       86.54 |                                                                   |                                                                      |                                            | 460                                                                      |                                                                              
|                    |                                                                   |                                                                      |                                            |                                                                          |                                                                              
|2.65
       86.54  |                                                                   |                                                                      |                                            | 29,437                                                                   |                                                                              
|                    |                                                                   |                                                                      |                                            |                                                                          |                                                                              

| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The weighted
      average fair values at grant date of options granted for the years ended
      December 31, 2001, 2002 and 2003, were $ 28.29, $ 9.44 and $ 5.44, respectively.
      All options are granted with an exercise price equal to the market value
      at the date of grant.

F- 25

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      10:- | EARNINGS
      PER SHARE
|--------------- | ------------------------
|                |                         

| | The following table
      sets forth the computation of historical basic and diluted net earnings
      per share:
| | ------------------------------------------------------------------------------------------------------------------
|

| |                                                    | Year ended
      December 31,
| | -------------------------------------------------- | -----------------------------
|
| | Net income                                         | $                            
| |                                                    |                              
| | Weighted
      average Ordinary shares outstanding |                              
| |                                                    |                              
| | Dilutive
      effect:                            
| | Employee
      stock options                       |                              
| |                                                    |                              
| | Diluted weighted
      average Ordinary shares    
| | outstanding                                        |                              
| |                                                    |                              
| | Basic net
      earnings per Ordinary share        | $                            
| |                                                    |                              
| | Diluted net
      earnings per Ordinary share      | $                            
| |                                                    |                              

F- 26

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**             
|----------------------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars
      in thousands**

|NOTE
      11:- | GEOGRAPHIC
      INFORMATION AND SELECTED STATEMENTS OF INCOME DATA
|--------------- | -------------------------------------------------------------------
|                |                                                                    

| | a. | Summary information
      about geographical areas:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Company adopted
      Statement of Financial Accounting Standard No. 131, Disclosures About
      Segments of an Enterprise and Related Information, (SFAS No.
      131). The Company operates in one reportable segment (see Note 1 for
      a brief description of the Companys business). The total revenues are attributed
      to geographic areas based on the location of the end customer.
      The following present total revenues for the years ended December 31, 2001,
      2002 and 2003 and long-lived assets as of December 31, 2001, 2002 and 2003:
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | 1.     Revenues
      based on the channel partners location:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                      | Year ended
      December 31,
| | ------------------------------------ | -----------------------------
|
| | Americas                             | $                            
| | Europe, Middle
      East and Africa |                              
| | Japan                                |                              
| | Asia Pacific                         |                              
| |                                      |                              
| |                                      | $                            
| |                                      |                              

| |  |                                
| |  | -------------------------------
| |  | 2.     Long-lived
      assets:
| |  |                                

| |          | December
      31,
| | -------- | ------------------
|
| | Israel   | $                 
| | Americas |                   
| | Other    |                   
| |          |                   
| |          | $                 
| |          |                   

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

| | Financial
      income:                            |   |        |  |   |        |  |   |        | 
| | -------------------------------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
| | Interest
      income                              | $ | 42,537 |  | $ | 46,098 |  | $ | 42,852 | 
| | Foreign
      currency translation adjustments and
| | others                                             |   | 2,523  |  |   | 3,521  |  |   | 1,006  | 
| |                                                    |   |        |  |   |        | 
| |                                                    |   | 45,060 |  |   | 49,619 |  |   | 43,858 | 
| |                                                    |   |        |  |   |        | 
| | Financial
      expense:                          
| | Others                                             |   | 300    |  |   | 305    |  |   | 352    | 
| |                                                    |   |        |  |   |        | 
| |                                                    |   | 300    |  |   | 305    |  |   | 352    | 
| |                                                    |   |        |  |   |        | 
| |                                                    | $ | 44,760 |  | $ | 49,314 |  | $ | 43,506 | 
| |                                                    |   |        |  |   |        | 

|
|
|

F- 27

---

---

|**CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.
      AND ITS SUBSIDIARIES**
|---------------------------------------------------------------------------
|**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars**      

# NOTE 12:- SUBSEQUEENT
EVENT (UNAUDITED)

| | In
March 2004, the Company completed the acquisition 100% of the outstanding shares of
privately held Zone Labs for approximately $114 million in cash and 5.3 million ordinary
shares. The Company also assumed Zone Labs outstanding employee stock options which
could convert to approximately 2.8 million of the Companys Ordinary shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Zone
Labs endpoint security solutions for enterprises, small businesses and consumers
which include the Integrity, ZoneAlarm and IM secure product lines, are expected to
further strengthen the Companys perimeter, internal and Web security portfolio,
enabling the Company to deliver a comprehensive end-to-end Internet security to all types
of customers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

F- 28

---

---

SIGNATURES

The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that
it has duly caused and authorized the undersigned to sign this annual report on its behalf.

|                     | CHECK
      POINT SOFTWARE TECHNOLOGIES LTD.                                        
|-------------------- | ------------------------------------------------------------------------------------
|                     |                                                                                     
|                     |                                                                                     
|                     | By:
      /s/ Gil Shwed________________________________                             
|                     | Gil
      Shwed 
            Chief Executive Officer and Chairman
      of the Board
|                     |                                                                                     
|                     |                                                                                     
|                     | By:
      /s/ Eyal Desheh______________________________                             
|                     | Eyal
      Desheh 
                                    Chief
      Financial Officer
|                     |                                                                                     
|Date: March 29, 2004 |                                                                                     
|                     |                                                                                     

---

---