---

---

# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

---

# FORM 20-F

|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, 2005
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

# OR

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

# OR

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

Date of event requiring this shell company report.............................

For the transition period from ___________ to ___________

Commission file number
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:    244,309,929 ordinary shares, NIS 0.01 nominal
value.

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

Yes  x      No  o

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

Yes o No o

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 whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

Large
Accelerated filer x        Accelerated filer o        Non-accelerated filer o

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

Item 17 o     Item 18 x

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

Yes  o      No  x



---

---



# TABLE OF CONTENTS

PART I

|         |                                                            |   
|-------- | ---------------------------------------------------------- | --
|
|
|
|
|Item 1.  | Identity of Directors, Senior Management and Advisors      | 3 
|        
|Item 2.  | Offer Statistics and Expected Timetable                    | 3 
|        
|Item 3.  | Key Information                                            | 5 
|        
|Item 4.  | Information on Check Point                                 | 16
|        
|Item 4A. | Unresolved staff comments                                  | 33
|        
|Item 5.  | Operating and Financial Review and Prospects               | 33
|        
|Item 6.  | Directors, Senior Management and Employees                 | 48
|        
|Item 7.  | Major Shareholders and Transactions with Related Party     | 57
|        
|Item 8.  | Financial Information                                      | 58
|        
|Item 9.  | The Offer and Listing                                      | 59
|        
|Item 10. | Additional Information                                     | 59
|        
|Item 11. | Quantitative and Qualitative Disclosures about Market Risk | 75
|        
|Item 12. | Description of Securities Other than Equity Securities     | 77

PART II

|          |                                                                              |   
|--------- | ---------------------------------------------------------------------------- | --
|
|
|
|
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 78
|         
|Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 78
|         
|Item 15.  | Controls and Procedures                                                      | 78
|         
|Item 16.  | Reserved                                                                     | 78
|         
|Item 16A. | Audit Committee Financial Expert                                             | 78
|         
|Item 16B. | Code of Ethics                                                               | 78
|         
|Item 16C. | Principal Accountant Fees and Services                                       | 79
|         
|Item 16D. | Exemption for the Listing Standards for Audit Committee                      | 79
|         
|Item 16E. | Purchase of Equity Securities by the Issuer and Affiliated Purchasers        | 80

PART III

|         |                      |   
|-------- | -------------------- | --
|
|
|
|
|Item 17. | Financial Statements | 81
|        
|Item 18. | Financial Statements | 81
|        
|Item 19. | Exhibits             | 82

2

---

---



# PART I

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

Not
applicable.

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

Not
applicable.

3

---

---



# Currency of presentation
and certain defined terms

In
this Annual Report on Form 20-F, references to U.S. or United
States are to the United States of America, its territories and its possessions.
References to $ or dollar or U.S. dollar are to the
legal currency of the United States, references to NIS or Israeli
Shekel are to the legal currency of Israel and references to Euro are to
the legal currency of the European Union.

All
references to we, us, our or Check Point
shall mean Check Point Software Technologies Ltd., and, unless specifically indicated
otherwise or the context indicates otherwise, our consolidated subsidiaries.

4

---

---



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

# Selected financial data

We
prepare our historical consolidated financial statements in accordance with generally
accepted accounting principles in the United States (U.S. GAAP). The selected financial
data set forth in the table below have been derived from our audited historical financial
statements for the years 2001 to 2005. The selected income data for the years 2003, 2004
and 2005, and the selected balance sheet data at December 31, 2004 and 2005, have been
derived from our audited consolidated financial statements set forth in Item 18
 Financial Statements. The selected income data for the years 2001 and 2002,
and the selected balance sheet data at December 31, 2001, 2002 and 2003, have been derived
from our previously published audited consolidated financial statements, which are not
included in this document. These selected financial data should be read in conjunction
with our consolidated financial statements, and are qualified entirely by reference to
them.

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

---

|(1) | Including
the following significant acquisition related pre-tax charges: in-process R&D of $23.1
     million, stock-based compensation of $4.6 million (related to Zone Labs acquisition)
and amortization of      intangible assets of $4.2 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Including
the following acquisition related pre-tax charges: stock-based compensation of $3.7
million      (related to Zone Labs acquisition) and amortization of intangible assets of
$5.6 million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | December 31,
|-------------------------------- | ------------
|
|
|
|
|Consolidated Balance Sheet Data: |             
|Working capital                  |             
|Total assets                     |             
|Shareholders' equity             |             
|Capital Stock                    |             

5

---

---



# RISK FACTORS

This
Form 20-F contains forward looking statements. The statements contained in this Form 20-F
that are not purely historical facts are forward looking statements. These statements are
based on our current expectations and projections about future events and are identified
by terminology such as may, will, should,
expect, scheduled, plan, intend,
anticipate, believe, estimate, aim,
potential, or continue or the negative of those terms or other
comparable terminology. Because we cannot predict the future these forward looking
statements are subject to risks, uncertainties and assumptions about us. These forward
looking statements include, but are not limited to, statements regarding our expectations,
beliefs, intentions, goals, plans, investments or strategies regarding the future and any
assumptions that relate to these.

Forward
looking statements include, among others, statements in (i) Item 4 
Information on Check Point regarding our 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 our
relationship with our technology partners on our sales goals, the contribution of our
products to our future revenue and our development of future products and (ii) Item
5  Operating and Financial Review and Prospects regarding, among other things,
future amounts and sources of our revenue, our ongoing relationships with our current and
future customers and channel partners, our future costs and expenses, and the adequacy of
our capital resources.

Forward-looking
statements involve risks, uncertainties and assumptions, and our actual results may differ
materially from those predicted. Many of these risks, uncertainties and assumptions are
described in the risk factors set forth below in this section and elsewhere in this Form
20-F. Although we believe that our plans, intentions and expectations are reasonable, we
may not achieve them. All forward looking statements included in this Form 20-F are based
on information available to us on the date of the filing and reasonable assumptions. We
undertake no obligation to update any of the forward looking statements after the date of
the filing to conform those statements to reflect the occurrence of unanticipated events,
except as required by applicable law.

# Risks Related to Our
Business and Our Market

If the market for Internet
security solutions does not continue to grow our business will be adversely affected.

The
market for our products has expanded rapidly over the last decade, but the market for
Internet security solutions may not continue to grow. Continued growth of this market will
depend, in large part, upon:

| | n | the
continued expansion of Internet usage and the number of organizations adopting or
expanding               intranets,
| | - | ------------------------------------------------------------------------------------------------------------------------

| | n | the
ability of their respective infrastructures to support an increasing number of users and
services,               and
| | - | ------------------------------------------------------------------------------------------------------------------------

| | n | 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 we currently anticipate, our business, operating
results and financial condition will be materially adversely affected. You can see more
details in Item 4  Information on Check Point.

6

---

---



# We may not be able to
successfully compete.

The
market for Internet security solutions is intensely competitive and we expect that
competition will increase in the future. Our principal competitors include Cisco Systems,
Inc., F5 Networks, Inc., Internet Security Systems, Inc., Juniper Networks, Inc., McAfee,
Inc., Microsoft Corporation, SonicWALL Inc., Symantec Inc. and WatchGuard Technologies
Inc.

Some
of our 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 us. As a result, they may be able to adapt better
than us to new or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their products. In addition, consolidation
in the Internet security market may affect our competitive position. We may not be able to
continue competing successfully against our 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 our business, operating results and
financial condition.

The
market for Internet security also includes many niche competitors, generally smaller
companies at a relatively early stage of operations, which are focused on specific
Internet security needs. These companies specialized focus may enable them to adapt
better than us to new or emerging technologies and changes in customer requirements in
their specific areas of focus. In addition, some of these companies can invest relatively
large resources on very specific technologies or customer segments. Although to date none
of these companies has materially affected our business, the cumulative effect of these
companies activities in the market may result in price reductions, reduced gross
margins and loss of market share, any of which will materially adversely affect our
business, operating results and financial condition.

Vendors
of operating system software or networking hardware may enhance their products to include
functionality that is currently provided by our products. The widespread inclusion of the
functionality of our software as standard features of operating system software or
networking hardware could render our products obsolete and unmarketable, particularly if
the quality of such functionality were comparable to that of our products. Furthermore,
even if the network or application security functionality provided as standard features by
operating systems software or networking hardware is more limited than that of our
solutions, a significant number of customers may elect to accept more limited
functionality in lieu of purchasing additional solutions.

If
any of the events described above are realized, our business, operating results and
financial condition will be materially adversely affected. You can see more details in
Item 4  Information on Check Point.

If we fail to enhance our existing
products, develop new and more technologically advanced products or successfully
commercialize these products, the results of our operations will suffer.

The
Internet security 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. In particular, the market
for Internet and intranet applications is rapidly evolving. As a result, we must
continually change and improve our products in response to changes in operating systems,
application software, computer and communications hardware, networking software,
programming tools and computer language technology.

7

---

---



Our
future operating results will depend upon our ability to enhance our current products and
to develop and introduce new products on a timely basis, to address the increasingly
sophisticated needs of our customers and to keep pace with technological developments, new
competitive product offerings and emerging industry standards. Our competitors
introduction of products embodying new technologies and the emergence of new industry
standards may render our existing products obsolete or unmarketable. While we have been
successful in developing and marketing new products and product enhancements that respond
to technological change and evolving industry standards, we may not be able to continue to
do so. In addition, we may experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products. Furthermore, our new
products or product enhancements may not adequately meet the requirements of the
marketplace or achieve market acceptance. In some cases, a new product or product
enhancements may negatively affect sales of our existing products. If we do 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, our business, operating results and financial condition will be materially
adversely affected. You can see more details in Item 4  Information on Check
Point and under the caption We may not be able to successfully compete
in this Item 3.

Undetected product defects may
increase our costs and impair the market acceptance of our products and technology.

Our
products are complex and must meet stringent quality requirements. They may contain
undetected hardware or software errors or defects, especially when new products are 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. We may need to divert the attention of our engineering personnel from our
research and development efforts to address instances of errors or defects. In addition,
we may in the future incur costs associated with warranty claims.

Our
products are used to manage Internet security, which may be critical to organizations. As
a result, the sale and support of our products entails the risk of product liability and
related claims. We do not know whether, in the future, we will be subject to liability
claims or litigation for damages related to product errors, or will experience delays as a
result of these errors. Our sales agreements and product licenses typically contain
provisions designed to limit our exposure to potential product liability or related
claims. In selling our products, we rely primarily on shrink wrap licenses
that are not signed by the end user, and for this and other reasons these licenses may be
unenforceable under the laws of some jurisdictions. As a result, the limitation of
liability provisions contained in these licenses may not be effective. Although we
maintain product liability insurance, the coverage limits of these policies may not
provide sufficient protection against an asserted claim. If litigation were to arise, it
could, regardless of its outcome, result in substantial expense to us, significantly
divert the efforts of our technical and management personnel, and disrupt or otherwise
severely impact our relationships with current and potential customers. In addition, if
any of our products fails to meet specifications or has reliability, quality or
compatibility problems, our reputation could be damaged significantly and customers might
be reluctant to buy our products, which could result in a decline in revenues, a loss of
existing customers or the inability to attract new customers.

Our earnings will be adversely
affected due to compliance with new accounting policies relating to the expensing of stock
options.

We
are required to prepare financial statements in accordance with the Financial Accounting
Standards Boards (FASB) recently issued accounting standard SFAS No. 123(R),
Shared-Based Payment. SFAS No. 123(R) requires the fair value of all
equity-based awards granted to employees to be recognized in financial statements
beginning in the first quarter of 2006. The result is that we will be required to record
an expense with respect to stock option grants, even if the exercise price of the stock
options is equal to the market price of the underlying shares on the date of grant. The
adoption of SFAS No. 123(R) will have a material adverse effect on our results of
operations, although it will have no impact on our overall financial position or cash
flows. SFAS No. 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after adoption. The
impact will depend on our levels of share-based payments granted in the future, among
other things. You can see more details in Item 5  Operating and Financial
Review and Prospects.

8

---

---



# Risks relating to
acquisitions.

We
have made acquisitions in the past and we may make additional acquisitions in the future.

In October
2005 we announced that we had signed a definitive agreement to acquire privately-held
Sourcefire, Inc., subject to various conditions, and we have not yet completed this
acquisition.  The closing of the acquisition of Sourcefire is subject to regulatory
approval, for which we have submitted two separate applications with regulatory
authorities in the U.S. We have received United States anti-trust approval and we are
waiting for a determination on our pending application with the Committee on Foreign
Investment in the United States (CFIUS) under the Exon-Florio legislation (Section 5021 of
the Omnibus Trade and Competitiveness Act of 1988), which provides for a 30-day review
following notification of a potential acquisition. CFIUS has the option to extend the
review period for an additional 45-day investigation. In February 2006, CFIUS notified us
that the 30-day review provided by the Exon-Florio legislation had expired and our pending
application had moved into the investigative stage for an additional 45-day
investigation.  Although we are working with CFIUS through the investigative period,
we cannot be certain that the acquisition will be approved or will be approved on the
terms originally negotiated or otherwise acceptable to us. For more information regarding
our proposed acquisition of Sourcefire and CFIUS review, see Item 5  Operating
and Financial Review and Prospects under the caption Overview.

In
March 2004 we completed the acquisition of Zone Labs, Inc. The acquisition of Zone Labs
involved the integration of two companies that had previously operated independently, as
will the acquisition of Sourcefire if completed. The difficulties of combining the
companies operations, which may be present in any substantial acquisition we may
make, include issues such as: the coordination of geographically separate organizations,
integrating personnel with diverse business backgrounds, potential difficulties in
retaining employees and the associated adverse effects on relationships with existing
partners. The integration may interrupt the activities of one or both of the combined
companies businesses and may result in the loss of key personnel. This could have an
adverse effect on our business, results of operations, financial condition or prospects.

# Our operating margins
may decline.

We
may experience a decline in operating margins due to the following reasons:

| | n | increased
competition that will result in pressure on us to reduce prices,
| | - | --------------------------------------------------------------------------

| | n | additional
investments in the continuing development and expansion of our sales and marketing
organization, including the expansion of our field organization both in the United States
and additional countries in Europe, Asia and Latin America,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | integration
of an acquired business that at the time of acquisition has operating margins lower than
              ours,
| | - | ------------------------------------------------------------------------------------------------------------------------

| | n | additional
expansion of our research and development organization,
| | - | ------------------------------------------------------------------

| | n | changes
to the treatment of stock option compensation due to the adoption of SFAS No. 123(R), and
| | - | -------------------------------------------------------------------------------------------------

9

---

---



| | n | expected
growth in the percentage of revenues that we derive from products incorporating hardware,
which have lower operating margins than software products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
operating margins are likely to fluctuate based on the amount and timing of these
developments. In addition, if our revenue levels are below expectations, this will likely
have an adverse effect on our operating margins, since most of our expenses are not
variable.

Our quarterly operating results
are likely to fluctuate, which could cause us to miss expectations about these results and
cause the trading price of our ordinary shares to decline.

Our
revenues from our sales are not consistent from quarter to quarter and we experience some
degree of seasonality in our sales. Factors that could cause our revenues and operating
results to fluctuate from period to period include:

| | n | changes
in customer capital spending budgets and the allocation of these budgets over the course
of the          year,
| | - | ----------------------------------------------------------------------------------------------------------------------

| | n | seasonal
trends in customer purchasing,
| | - | ---------------------------------------

| | n | the
occurrence of Internet security breaches or threats,
| | - | --------------------------------------------------------

| | n | the
timing and success of new products and new technologies introduced by us or our
competitors,
| | - | ------------------------------------------------------------------------------------------------

| | n | regional
or global economic and political conditions,
| | - | -----------------------------------------------------

| | n | our
ability to integrate the technology and operations of acquired businesses with our own
business, and
| | - | --------------------------------------------------------------------------------------------------------

| | n | fluctuations
in foreign currency exchange rates.
| | - | ------------------------------------------------

Unfavorable
changes in the factors listed above, most of which are outside of our control, could
materially adversely affect our business, operating results and financial condition.

Historically,
our revenues have reflected seasonal fluctuations related to the slowdown in spending
activities in Europe for the third quarter, and the increased activity related to the
year-end purchasing cycles of many users of our products. We believe that we will continue
to encounter quarter-to-quarter seasonality.

We
operate with virtually no backlog. Therefore, the timing and volume of orders within a
given period and our ability to fulfill these orders determine the amount of our revenues
within the period. We derive our sales principally through indirect channels, making it
difficult for us to predict revenues. Furthermore, our expense levels are based, in part,
on our expectations as to future revenues. If our revenue levels are below expectations,
our operating results are likely to be adversely affected, since most of our expenses are
not variable. As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as indications of
future performance. Due to the factors described above, it is likely that in some future
quarter our operating results may be below the expectations of public market analysts and
investors. In this event, the price of our ordinary shares would likely decline
significantly.

10

---

---



We are exposed to additional costs
and risks associated with complying with increasing and new regulation of corporate
governance and disclosure standards.

As a public company, we will be
spending an increased amount of management time and resources to comply with changing
laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002, new Securities and Exchange Commission
regulations and Nasdaq National Market rules. Particularly, as a foreign private issuer,
we will need to comply with the provisions of Section 404 of the Sarbanes-Oxley Act no
later than the filing of our annual report on Form 20-F for the fiscal year ending
December 31, 2006. Section 404 requires managements annual review and evaluation of
our internal controls over financial reporting, and attestation of the effectiveness of
our internal controls over financial reporting by management and our independent
registered public accounting firm in connection with the filing of our annual report on
Form 20-F for the fiscal year ending December 31, 2006, and with each subsequently filed
annual report on Form 20-F. As part of this process, we will need to document and test our
internal control systems and procedures and make improvements in order for us to comply
with the requirements of Section 404. This process will result in additional accounting
and legal expenses.

We depend on our key personnel,
including our executive officers, and the failure to attract and retain key personnel
could adversely affect our business.

Our
future performance depends in large part on the continued service of our key technical,
marketing, sales and management personnel, including particularly our executive officers
who were involved in the development of our Stateful Inspection technology and all of our
principal products and technologies. None of our key personnel is bound by an employment
agreement requiring service for any defined period of time. Our future performance also
depends on our ability to attract such skilled personnel in the future. Competition for
these personnel is intense. In order to retain our employees, we provide many of them with
cash and stock based awards that can be realized over time, for their long term
contribution, and we offer some of them career development paths within Check Point. We
cannot assure you that we can retain our key personnel in the future. The loss of services
of any of our key personnel, the inability to retain and attract qualified personnel in
the future, or delays in hiring required personnel could make it difficult for us to meet
key objectives, such as timely product introductions, and could adversely affect our
business, financial condition and results of operations.

Under current U.S. and Israeli
law, we may not be able to enforce covenants not to compete and therefore may be unable to
prevent our competitors from benefiting from the expertise of some of our former
employees.

Under
current U.S. and Israeli law, we may not be able to enforce, in whole or in part,
agreements that prohibit some of our employees from competing with us or working for our
competitors after they cease working for us. It may be difficult for us to restrict our
competitors from gaining the expertise our former employees gained while working for us.
For example, Israeli courts have recently required employers seeking to enforce
non-competition undertakings of a former employee to demonstrate that the competitive
activities of the former employee will harm one of a limited number of material interests
of the employer which have been recognized by the courts, such as the secrecy of a
companys confidential commercial information or its intellectual property. If we
cannot demonstrate that material harm would be caused to us, we may be unable to prevent
our competitors from benefiting from the expertise of our former employees.

We are dependent on a small number
of distributors and resellers and on a limited number of product families.

Two
distributors accounted for about 24% of our sales in 2005 (approximately 12% each), and in
each of 2003 and 2004 a single distributor accounted for about 13% of our sales. We expect
that a small number of distributors and resellers will continue to generate a significant
portion of our sales. If these distributors and resellers reduce the amount of their
purchases from us, our business, operating results and financial condition could be
materially adversely affected.

11

---

---



Currently,
most of our revenues are generated from sales of Internet security products, which are
primarily sold under the VPN-1 and related brands, and related sales of software
subscriptions, support, training and consulting. Our future growth depends heavily on our
ability to effectively develop and sell new product lines as well as add new features to
existing product lines. You can see more details in Item 4  Information on
Check Point and in Item 5  Operating and Financial Review and
Prospects.

We incorporate third party
technology in our products, which may make us dependent on the providers of these
technologies and expose us to potential intellectual property claims.

Our
products contain certain technology that others license to us. Third party developers or
owners of technologies may not be willing to enter into, or renew, license agreements with
us regarding technologies that we may wish to incorporate in our products, either on
acceptable terms or at all. If we cannot obtain licenses to these technologies, we may be
at a disadvantage compared with our competitors who are able to license these
technologies. In addition, when we do obtain licenses to third party technologies that we
did not develop, we may have little or no ability to determine in advance whether the
technology infringes the intellectual property rights of others. Our suppliers and
licensors may not be required or may not be able to indemnify us in the event that a claim
of infringement is asserted against us, or they may be required to indemnify us only up to
a maximum amount, above which we would be responsible for any further costs or damages.

We are the defendants in various
lawsuits, and litigation is expensive and disruptive.

We
are the defendants in various lawsuits, including employment claims and other legal
proceedings in the normal course of our business. In addition, we received several class
action complaints alleging violations of the federal securities laws. These complaints
were later consolidated by the court into one action. You can see more details in
Item 8  Financial Information under the caption Legal
proceedings. Legal proceedings can be expensive, lengthy and disruptive to normal
business operations, and can require extensive management attention and resources,
regardless of their merit. Moreover, we cannot predict the results of complex legal
proceedings, and an unfavorable resolution of a lawsuit or proceeding could materially
adversely affect our business, results of operations and financial condition.

Class action litigation due to
stock price volatility or other factors could cause us to incur substantial costs and
divert our managements attention and resources.

In
the past, following periods of volatility in the market price of a public companys
securities, securities class action litigation has often been instituted against that
company. Companies such as ours in the software industry and other technology industries
are particularly vulnerable to this kind of litigation as a result of the volatility of
their stock prices. As noted above, we have been named as a defendant in this kind of
litigation. Any litigation of this sort could result in substantial costs and a diversion
of managements attention and resources.

We may not be able to successfully
protect our intellectual property rights.

We
seek to protect our proprietary technology by relying on a combination of common law
copyright and trademark laws, trade secrets, confidentiality procedures and contractual
provisions as indicated below in the section entitled Proprietary Rights in
Item 4  Information on Check Point. We have certain patents in the
United States and some other countries, as well as pending patent applications. We cannot
guarantee that pending patent applications will be issued, either at all or within the
scope of the patent claims that we have submitted. In addition, someone else may challenge
our patents and these patents may be found invalid. Furthermore, others may develop
technologies that are similar to or better than ours, or may work around any patents
issued to us. Despite our efforts to protect our proprietary rights, others may copy
aspects of our products or obtain and use information that we consider proprietary.
Although we do not know the extent to which there is piracy of our software products,
software piracy is a persistent problem. We try to police this type of activity, but it is
difficult to do so effectively. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as the laws of the United States or
Israel. Our efforts to protect our proprietary rights may not be adequate or our
competitors may independently develop technology that is similar to our technology.

12

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We are exposed to various legal,
business, political and economic risks associated with international operations; these
risks could increase our costs, reduce future growth opportunities and affect our results
of operations.

We
sell our products worldwide, and we book a significant portion of our revenue outside the
United States. We intend to continue to expand our international operations, which will
require significant management attention and financial resources. In order to continue to
expand worldwide, we will need to establish additional operations, hire additional
personnel and recruit additional channel partners internationally. To the extent that we
are unable to do so effectively, our growth is likely to be limited and our business,
operating results and financial condition will be materially adversely affected.

Our
international revenues and operations subject us to many risks inherent in international
business activities, including, but not limited to:

| | n | technology
import and export license requirements,
| | - | --------------------------------------------------

| | n | costs
of localizing our products for foreign  countries,  and the lack of acceptance of
localized products               in foreign countries,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | n | trade
restrictions,
| | - | -------------------

| | n | imposition
of or increases in tariffs or other payments on our revenues in these markets,
| | - | -----------------------------------------------------------------------------------------

| | n | changes
in regulatory requirements,
| | - | -----------------------------------

| | n | greater
difficulty in protecting intellectual property,
| | - | -------------------------------------------------------

| | n | difficulties
in managing our overseas subsidiaries and our international operations,
| | - | ------------------------------------------------------------------------------------

| | n | changes
in general economic conditions,
| | - | ---------------------------------------

| | n | political
 instability  and civil unrest,  which could  discourage  investment and complicate our
dealings               with governments,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | n | variety
of foreign laws and legal standards,
| | - | --------------------------------------------

| | n | expropriation
and confiscation of assets and facilities,
| | - | --------------------------------------------------------

| | n | fluctuations
in currency exchange rates, such as an increase in the value of the U.S. dollar relative
to foreign currencies that would make our products more expensive in local currency and,
therefore, potentially less competitive in those markets,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | difficulties
in collecting receivables from foreign entities or delayed revenue recognition,
| | - | --------------------------------------------------------------------------------------------

| | n | differing
labor standards,
| | - | --------------------------

| | n | potentially
 adverse tax  consequences,  including  taxation of a portion of our  revenues at higher
rates               than the tax rate that applies to us in Israel, and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the
introduction of exchange controls and other restrictions by foreign governments.
| | - | ------------------------------------------------------------------------------------

These
difficulties could cause our revenues to decline, increase our costs or both.

13

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We are controlled by a small
number of existing shareholders, who may make decisions with which you may disagree.

As
of December 31, 2005 our directors and executive officers beneficially owned approximately
23.5% of our outstanding ordinary shares. The interests of these shareholders may differ
from your interests and present a conflict. If these shareholders act together, they could
exercise significant influence over our operations and business strategy. For example,
although these shareholders hold considerably less than a majority of our outstanding
ordinary shares, they have sufficient voting power to influence all matters requiring
approval by our shareholders, including the election and removal of directors and the
approval or rejection of mergers or other business combination transactions. In addition,
this concentration of ownership may delay, prevent or deter a change in control, or
deprive you of a possible premium for your ordinary shares as part of a sale of our
company.

# Indemnification of
directors and officers.

We
have entered into agreements with each of our directors and senior officers to insure,
indemnify and exculpate them against some types of claims, subject to dollar limits and
other limitations. These agreements provide, subject to Israeli law, for us to indemnify
each of these directors and senior officers for any of the following obligations or
expenses that they may incur:

| | n | monetary
liability imposed on the director or senior officer in favor of a third party in a
judgment, including a settlement or an arbitral award confirmed by a court, for an act
that the director or senior officer performed by virtue of being our director or senior
officer,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | reasonable
legal costs, including attorneys fees, expended by a director or senior officer as
a result of an investigation or proceeding instituted against the director or senior
officer by a competent authority, provided that such investigation or proceeding
concludes without the filing of an indictment against the director or senior officer and
either:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | no
financial liability was imposed on the director or senior officer in lieu of criminal
proceedings, or
| | - | --------------------------------------------------------------------------------------------------------

| |  | financial
liability was imposed on the director or senior officer in lieu of criminal proceedings
but the alleged criminal offense does not require proof of criminal intent, and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | reasonable
legal costs, including attorneys fees, expended by the director or senior officer
or for which the director or senior officer is charged by a court:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | in
an action brought against the director or senior officer by us, on our behalf or on
behalf of a third                       party,
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| |  | in
a criminal action in which the director or senior officer is found innocent, or
| | - | ----------------------------------------------------------------------------------

| |  | in
a criminal action in which the director or senior officer is convicted but in which proof
of criminal intent is not required.
| | - | --------------------------------------------------------------------------------------------------------------------------------

Our business and operations are
especially subject to the risks of earthquakes and other natural catastrophic events.

Our
headquarters in the United States, as well as certain of our research and development
operations, are located in the Silicon Valley area of Northern California, a region known
for seismic activity. A significant natural disaster, such as an earthquake,
could damage our operations and properties, and adversely affect our business,
operating results and financial condition.

14

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# Risks Related to Our
Operations in Israel

Potential political, economic and
military instability in Israel, where our principal executive offices and our principal
research and development facilities are located, may adversely affect our results of
operations.

We
are incorporated under the laws of the State of Israel, and our principal executive
offices and principal research and development facilities are located in Israel.
Accordingly, political, economic and military conditions in and surrounding Israel may
directly affect our business. Since the State of Israel was established in 1948, a number
of armed conflicts have occurred between Israel and its Arab neighbors. Any hostilities
involving Israel or the interruption or curtailment of trade between Israel and its
present trading partners, or a significant downturn in the economic or financial condition
of Israel, could materially adversely affect our operations. Since October 2000 terrorist
violence in Israel has increased significantly. Ongoing and revived hostilities or other
Israeli political or economic factors could materially adversely affect our business,
operating results and financial condition.

The tax benefits available to us
under Israeli law require us to meet several conditions, and may be terminated or reduced
in the future, which would increase our taxes.

Our
facilities in Israel have been granted Approved Enterprise status under the Law for the
Encouragement of Capital Investments, 1959, commonly referred to as the Investment Law.
The Investment Law provides that capital investments in a production facility (or other
eligible assets) may be designated as an Approved Enterprise. Until recently, the
designation required advance approval from the Investment Center of the Israel Ministry of
Industry, Trade and Labor (the Investment Center). For these programs to be eligible for
tax benefits, we must meet certain conditions, relating principally to adherence to the
approved programs and to periodic reporting obligations. We believe that we are currently
in compliance with these requirements. However, if we fail to meet these requirements, we
would be subject to corporate tax in Israel at the regular statutory rate. We could also
be required to refund tax benefits, with interest and adjustments for inflation based on
the Israeli consumer price index.

Our
board of directors has determined that we will not distribute any amounts of our
undistributed tax exempt income as dividend. We intend to reinvest our tax-exempt income
and not to distribute such income as a dividend. Accordingly, no deferred income taxes
have been provided on income attributable to our Approved Enterprise program as the
undistributed tax exempt income is essentially permanent in duration.

On
April 1, 2005, an amendment to the Investment Law came into effect, which revised the
criteria for investments qualified to receive tax benefits. An eligible investment program
under the amendment will qualify for benefits as a Privileged Enterprise (rather than the
previous terminology of Approved Enterprise). Among other things, the amendment provides
tax benefits to both local and foreign investors and simplifies the approval process. The
amendment does not apply to investment programs approved prior to December 31, 2004. The
new tax regime will apply to new investment programs only.

As
a result of the amendment, tax-exempt income generated under the provisions of the new law
will subject us to taxes upon distribution or liquidation and we may be required to record
deferred tax liability with respect to such tax-exempt income. We are currently evaluating
the impact the amendment will have on us. Based on our preliminary analysis, it may
materially adversely affect our 2006 financial statements.

You
can see more details in Item 5  Operating and Financial Review and
Products under the caption Taxes on income and in Item 10 
Additional Information under the caption Israeli Taxation, Foreign Exchange
Regulation and Investment Programs.

15

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Our operations may be disrupted by
the obligations of our personnel to perform military service.

Many
of our male employees in Israel, including members of senior management, are obligated to
perform one month (in some cases more) of annual military reserve duty until they reach
age 45 and, in the event of a military conflict, could be called to active duty. Our
operations could be disrupted by the absence of a significant number of our employees
related to military service or the absence for extended periods of military service of one
or more of our key employees. A disruption could materially adversely affect our business,
operating results and financial condition.

Provisions of Israeli law and our
articles of association may delay, prevent or make difficult an acquisition of us, prevent
a change of control and negatively impact our share price.

Israeli
corporate law regulates acquisitions of shares through tender offers and mergers, requires
special approvals for transactions involving directors, officers or significant
shareholders, and regulates other matters that may be relevant to these types of
transactions. Furthermore, Israeli tax considerations may make potential acquisition
transactions unappealing to us or to some of our shareholders. For example, Israeli tax
law may subject a shareholder who exchanges his or her ordinary shares for shares in a
foreign corporation to taxation before disposition of the investment in the foreign
corporation. These provisions of Israeli law may delay, prevent or make difficult an
acquisition of our company, which could prevent a change of control and therefore depress
the price of our shares.

In
addition, our articles of association contain certain provisions that may make it more
difficult to acquire us, such as the ability of our board of directors to issue preferred
shares. These provisions may have the effect of delaying or deterring a change in control
of us, 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 our
securities.

You
can see more details in Item 10  Additional Information under the
caption Articles of association and Israeli Companies Law  Anti-takeover
measures.

|ITEM 4. |  | INFORMATION ON CHECK POINT
|------- |  | --------------------------

We
develop, market and support a wide range of software and combined hardware and software
products and services that enable our customers to communicate securely over IP (Internet
Protocol) networks, primarily targeting those connected to the Internet. Our products and
services protect our customers networks in four areas: perimeter, internal, Web and
endpoint. Perimeter security protects against unauthorized entry and other threats that
are introduced from outside the network. Internal security protects against threats that
are introduced from inside the network. Web security enables remote employees and partners
to connect to an organizations network securely from any Web browser and protects
Web-based business applications. Endpoint security protects personal computers from
hackers, worms, cyber spies (spyware) and data thieves. Our products and services operate
under a unified security architecture, with central management and enforcement of security
policy. Our products and services are sold to enterprises, service providers, small- and
medium-sized businesses and consumers. Our Open Platform for Security (OPSEC) framework,
allows customers to extend the capabilities of our products and services, enabling
integration with leading hardware appliances and third-party security software
applications. Our products are sold, integrated and serviced by a network of partners
around the world.

You
can see more details regarding the important events in the development of our business
since the beginning of 2005 in Item 5  Operating and Financial Review and
Prospects under the caption Overview.

16

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We
were incorporated in Israel in 1993. Our registered office and principal place of business
is located at 3A Jabotinsky Street, Ramat-Gan 52520, Israel. The telephone number of our
registered office is 972-3-753-4555. Our companys Web site is
www.checkpoint.com. The contents of our Web site are not incorporated by reference
into this Form 20-F.

This
Form 20-F is available on our Web site. If youd like to receive a printed copy via
mail, please contact our Investor Relations department at 800 Bridge Parkway, Redwood
City, CA 94065, U.S.A., tel: 650-628-2000, email: ir@us.checkpoint.com.

Our
agent for service of process in the United States is CT Corporation System, 818 West
Seventh Street, Los Angeles, CA 90017 U.S.A., tel: 213-627-8252.

# Industry background

The
ability to access and distribute information is a key strategic asset in todays
competitive business environment. The resulting 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 has in turn
expanded the need for technology to safeguard and manage the access to information
available over these networks, which have become increasingly global.

Increase
in connectivity

Over
the past decade global connectivity has increased dramatically. The network computing
market has undergone three major transitions. The first of these transitions was the
migration of corporate computing environments from networks centralized in one location to
networks dispersed over multiple remote locations. The ability to access and share
information over multiple remote locations has expanded the need for connectivity beyond
workgroup Local Area Networks (LANs) to enterprise-wide networks spanning multiple LANs
and Wide Area Networks (WANs). The second major transition has been the widespread
adoption of the Internet as a platform for conducting business. Internet-based business
applications have rapidly expanded beyond email to a broad range of business applications
and services such as electronic publishing, direct-to-customer transactions, supply chain
automation, product marketing, advertising and customer support. The emergence of
increased reliance on the Internet for business communications and transactions increases
the need for secured access to information and applications and raises challenges
associated with providing it. 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 access private corporate networks
and information from a growing spectrum of devices, including laptops, personal digital
assistants (PDAs) 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 that connect
to the corporate network.

These
developments and the need for secure and managed communications have led to the broad
acceptance of Virtual Private Networks (VPNs). VPNs enable a secured exchange of private
information over networks including the Internet. Sharing information and utilizing
services are now widely adopted, both within the enterprise and with business partners and
customers. 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 link into their enterprise information
systems. As Internet protocols and infrastructure gain increasingly widespread acceptance
as a means of global communication, new wide-area connectivity services continue to emerge
at a rapid rate. These connectivity services include access to Web information, messaging
applications such as email, 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.

17

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The
need for security

The
growth of connectivity among organizations of all sizes has increased the risk that an
organizations information technology (IT) resources can be attacked via the
Internet. Organizations have recognized this risk and are deploying security solutions in
an effort to protect their confidential information from unauthorized access.

The
primary means of controlling access to organizational networks and protecting against
attacks is the deployment of Internet firewalls. Firewalls are typically deployed at the
demarcation of an organizations LAN and the Internet, and are used to strictly
control traffic into and out of the organizational 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. Increasing numbers of organizations are deploying an additional layer of security
by applying security software to networked endpoint devices such as personal computers.
Endpoint security includes personal firewall, security and policy enforcement features
that have been specifically designed for internal and remote personal computing devices.

In
addition to protecting an organizations IT assets from attack, organizations take
steps to guard their sensitive information traversing untrusted networks, such as the
Internet. Securing organizational information on the Internet is critical as more
organizations utilize the Internet as their corporate network backbone to link company
offices and employees. Transmitting information over the Internet without adequate
security exposes this information to unauthorized interception, manipulation or
replication. To mitigate this risk, an increasing number of organizations are deploying
VPNs to encrypt and authenticate their Internet-bound traffic.

Frequently,
firewalls and VPNs are provided in an integrated manner or as a single product.
Integrating firewall and VPN functionality delivers greater security for all network
traffic and facilitates the management and enforcement of an organizations security
policies.

IT
security administrators within organizations have long focused on securing the network
perimeter. However, organizations are increasingly realizing the importance of also
securing their internal networks and Web-based business applications. Many of todays
security threats and attacks emerge within organizations. Internal security breaches can
be in the form of worm outbreaks and other attacks that are introduced through mobile and
wireless devices, internal hacking and misuse of business applications by users within an
organization. In addition, due to the rapid development of Web-based technologies, and the
increased reliance on the Web to connect remote users, Web-based applications and
protocols are highly vulnerable to attack. This presents many security challenges for
businesses because internal networks and Web-based communications contain unique
complexities such as diverse programming languages and communications protocols that are
used in these environments. Security solutions for both internal and Web security need to
have a deep understanding of the programming languages, applications and protocols that
are common in these environments.

# Technologies

We
have developed a variety of technologies that secure information and networks. Our
technologies provide protection:

| | n | for
network perimeter - to ensure that only authorized users can access our customers'
network resources               and to detect and thwart attacks,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

18

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| | n | for
internal threats  to protect our customers networks and endpoints from
the threats that emerge within an organization, such as worms, internal hacking and
misuse of business applications,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | for
Web-based communications  by allowing remote and mobile employees to securely
connect to their organizations networks via a Web browser, and to defend against
attacks targeting our customers Web-based business applications,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | for
network endpoints  with security solutions that address the risks posed by
hackers, worms, spyware and other threats to the internal and remote computers that
access our customers networks.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
products and services implement these technologies to protect our customers networks
and private information, and enable their IT administrators to define their security
policies and enforce these policies across the network. These technologies also collect
and bring together related information, monitor security and traffic flow, and analyze and
update configurations to reflect changes in the security policy.

We
package and market our products and services under different names and at a variety of
prices. Each package addresses security tasks for different networking environments.

Stateful
Inspection technology

Our patented
Stateful Inspection technology is the de facto standard in network security technology.
Stateful Inspection extracts and maintains extensive state information (data
that provides context for future screening decisions) from all relevant communications
layers, to provide accurate and highly efficient traffic inspection.

Stateful
Inspection runs on a network gateway or an endpoint such as a personal computer, and
enables the screening of all data attempting to pass from one network to another. By
tracking each connection from source to destination, the system ensures that data passing
through the gateway complies with a defined security and traffic policy, that traffic is
managed according to priority and that security decisions are made in an intelligent and
timely manner.

Stateful
Inspection enables our products to inspect network traffic with virtually no loss in
performance. This means that our products respond efficiently to larger volumes of data as
network traffic increases. Our Stateful Inspection technology can be adapted to new
protocols, software applications and security threats, can be upgraded, and can be run on
a wide range of operating systems.

Security
and network traffic enforcement technologies (based on Stateful Inspection)

Our INSPECT
engine, based on our Stateful Inspection technology, scans all incoming and outgoing
traffic at security enforcement points. These are typically located at the network
perimeter as security gateways, on critical servers or inside the network (dividing the
network into separate segments).

The
INSPECT engine can perform a variety of functions on inspected network traffic:

| | n | drop
it when the security policy has been violated,
| | - | ---------------------------------------------------

| | n | encrypt
it to create a secured Virtual Private Network (VPN) that enables the transfer of private
data over public networks such as the Internet,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

19

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| | n | prioritize
it for Quality of Service (QoS), that is, the ability of a network to provide better
service for selected traffic, and
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | n | send
it for further processing such as authentication, content inspection or filtering of
malicious or               unwanted traffic.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

We
have developed a broad range of technologies that can be implemented by our INSPECT
engine. In addition, third party technologies can be implemented through our OPSEC (Open
Platform for Security) framework, which is described below.

Application
Intelligence

Our
Application Intelligence technology provides a set of advanced capabilities that prevents
the exploitation of vulnerabilities in business applications, including vulnerabilities in
the application code, communication protocols and the underlying operating system.
Application Intelligence provides security for these applications by running multiple
security checks including validation of compliance to standards, validation of expected
use of protocols, inspection for known malicious content, and controlling application
layer operations. The result is the ability to proactively shield applications from attack
without relying on specific attack signatures. We have integrated our Application
Intelligence technology into our VPN-1 Pro, VPN-1 Edge, Check Point Express, Safe@Office,
InterSpect, Connectra, Integrity and VPN-1 VSX products, which are described below.

Security
Management Architecture (SMART)

Security
Management Architecture (SMART), a core component of our unified security architecture,
enables our customers to configure and manage security policies from a central
administrative point. SMART enables the definition and ongoing management of security
policies for businesses of all sizes. This object-oriented architecture maps real-world
entities, such as networks and users, to graphical representations that can be manipulated
in a database. Integrated monitoring and reporting tools improve the manageability of the
system by providing administrators with real-time information on the state of network and
security systems. These tools also provide longer term trending information that is useful
for periodic security management tasks such as security audits.

SecurePlatform

SecurePlatform
is an optimized, pre-hardened version of the Linux operating system that enables easy
deployment of our products on a variety of open systems (systems whose key interfaces are
based on widely supported standards). SecurePlatform bundles our products with a set of
tools that ease setup and network configuration. SecurePlatform lowers costs while
maintaining network performance, thus reducing the total cost of ownership for security
servers.

SecureXL

SecureXL
is a framework of software and hardware technologies, including third party technologies
designed to increase performance. By using SecureXL, hardware vendors can accelerate the
performance of appliances on which our software is installed. With SecureXL our products
can be integrated into high performance networks typically found in large enterprises and
service providers.

20

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Malicious
Code Protector

Malicious
Code Protector, a patent-pending technology, provides protection against buffer overflow
attacks that occur when a program or process tries to store more data in a buffer
(temporary data storage area) than it was intended to hold. This is a common technique
used by hackers to execute malicious code on business computer systems in an attempt to
gain unauthorized access or bring the system down. Malicious Code Protector helps prevent
these types of attacks by providing highly accurate and efficient detection and analysis
of executable code in a virtual server environment combined with the ability to prevent
any malicious code from being allowed to run on the system.

Cooperative
Enforcement

Our
patented Cooperative Enforcement technology enables our Integrity product family
(described below) to work cooperatively with network devices such as VPN gateways,
switches and routers to cooperate in the enforcement of corporate security policies.
Cooperative Enforcement technology helps ensure that every endpoint personal computer is
compliant with a designated security policy (such as having anti-virus software or the
latest operating system patches installed) before it is allowed to access network
resources.

TrueVector
technology

Our
TrueVector technology is a patented, flexible and efficient software technology for
enabling high-performance, scalable and robust Internet security for personal computers.

TrueVector
stops attempts to send confidential data to unauthorized parties, by malicious software
such as keystroke loggers and Trojan horses. It monitors all applications running on
protected computers, allowing trusted applications to engage in network communications
while blocking network connections by untrusted applications. TrueVector enforces security
policies that are centrally created and managed, standalone or any combination of these.
In addition, TrueVector may be configured to make protected computers invisible to
external attackers. The technology is used in the Integrity and ZoneAlarm lines of
endpoint security products (described below).

ClusterXL

Our
ClusterXL technology provides high availability and load sharing to keep businesses
running. It distributes traffic between clusters of redundant gateways so that the
computing capacity of multiple machines may be combined to increase total throughput. If
an individual gateway becomes unreachable, all connections are redirected to a designated
backup without interruption. Integration with our management and enforcement points
enables simple deployment.

Open
Platform for Security (OPSEC)

Our OPSEC
framework provides a single platform that enables the integration and interoperability of
multi-vendor information security products and technologies. The OPSEC framework allows
certified third-party security applications to plug into our solutions through our
published application programming interfaces. Examples include:

| | n | content
vectoring protocol  integrates virus scanning software and other content inspection
programs,
| | - | ------------------------------------------------------------------------------------------------------

21

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| | n | URL
filtering protocol  integrates URL list services, which deny client requests
for Web sites that are listed in a bad URL list, or allow only those requests
for URLs that appear in a good URL list,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | suspicious
activity monitoring protocol  integrates programs that monitor suspicious
activity.
| | - | -----------------------------------------------------------------------------------------------

Products
that carry the OPSEC Certified seal have been tested and certified for integration and
interoperability within the OPSEC framework.

# Products

Historically,
we have focused on VPN and firewall technologies, the main building blocks for network
security. In June 2003 we introduced a new version of our flagship VPN-1 family, NG
with Application Intelligence. NG with Application Intelligence integrated network
and application-level capabilities to deliver comprehensive attack protection and network
security. In 2005 we introduced NGX, an advanced security software platform that is the
basis for all of our enterprise security solutions. The NGX platform delivers a unified
security architecture for perimeter, internal, Web and endpoint security. This unified
security architecture enables enterprises of all sizes to reduce the cost and complexity
of security management and ensure that their security systems can be easily extended to
adapt to new and evolving threats.

Our
products address specific customer needs in a wide range of deployment scenarios with a
variety of operating systems such as Nokia IPSO, Microsoft Windows, Sun Solaris and Linux.

22

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The
table below summarizes our product offerings:

|Perimeter Security                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Internal security                                                           | Web Security                                                                                                                                                                                                                                                                                                                                    | Endpoint Security                                                                                                                                                                                                                                                                           | Security Management
and Online Services                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                             |                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                             
|VPN-1 Pro
Integrated firewall and 
VPN gateway for 
enterprises 
                         VPN-1 Edge
Secure connectivity for 
remote sites and large 
scale deployments 
                         Check Point Express
Integrated security 
gateway for mid-sized 
businesses 
                         VPN-1 VSX
Virtualized security and 
network services for 
service providers and 
large enterprises 
                         FireWall-1 GX
Security gateway designed
to protect network 
infrastructure of 
wireless operators 
                         UTM - Unified Threat Management Products
                         
  Check Point Express CI
  Integrated security 
  gateway - including 
  anti-virus - for 
  mid-sized businesses 
                         
  Safe@Office
  Security appliances for
  small businesses 
                         
  VPN-1 Edge
  Secure connectivity 
  for remote sites 
  and large scale 
  deployments | InterSpect
gateway that blocks 
attacks introduced 
from inside the network | Connectra             
Web security gateway  
that provides secure  
remote access via SSL 
VPN                   
                      Web Intelligence     
Attack protection for 
the Web-based business
applications
                      SSL Network Extender  
Web browser plug-in   
that enables secure   
remote access via SSL 
VPN | Integrity product     
family          
Security for every    
desktop and laptop in 
the organization
                      VPN-1 SecureClient    
Secure remote network 
access                ZoneAlarm Product     
Family                
Security for home-user
and small-business PC | SmartCenter
A singe console for
centrally managing
securityEventia product family
Security event
management and
reportingSmartDefense Services
Real-time security
update subscriptionProvider-1
Security management
for service providers
and large scale
enterprisesSecurity Management
Portal (SMP)
Security management of
up to tens of
thousands of
Safe@Office gateways

23

---

---



Perimeter
security

Perimeter
security ensures the confidentiality, integrity and availability of corporate networks by
controlling access to all entry and exit points of the network. Perimeter security
solutions are also used to securely connect geographically distributed offices or sites.

Enterprise
products:

VPN-1
Pro

VPN-1
Pro is an integrated firewall and VPN gateway that provides security and remote
connectivity to corporate applications and network resources for enterprises with over 500
employees. VPN-1 Pro integrates access control, authentication and encryption to help
ensure the security of network connections, the authenticity of local and remote users,
and the privacy and integrity of data communications. VPN-1 Pro is available as a gateway
or bundled with SmartCenter centralized management solution, which is described below.

VPN-1
Edge

VPN-1
Edge integrated security appliances deliver secure connectivity for remote sites such as branch offices,
retail stores and partner sites.  VPN-1 Edge integrates firewall, VPN, intrusion prevention and anti-virus
capabilities with high availability and advanced routing features, and performs as a UTM solution (see
description below).  This ensures that remote site communications are available and secure.  Centrally managed,
VPN-1 Edge appliances enable the efficient setup of thousands of gateways.  VPN-1 Edge appliances are available
in wired and wireless models.

Products
for medium businesses:

Check
Point Express

Check
Point Express is an integrated security gateway designed for mid-sized companies with up
to 500 users, which have single or multiple sites. Check Point Express integrates
firewall, VPN, and intrusion prevention capabilities with simple and centralized
management of all security functions.

Unified
Threat Management (UTM) Solutions:

Unified
Threat Management (UTM) solutions are products that unify and integrate multiple security
features in a single security solution. Typical UTM products integrate firewall, VPN,
anti-virus, and intrusion prevention technologies within a single, centrally managed
product. We are addressing this emerging market with the following products:

Check
Point Express CI

Check
Point Express CI is an integrated security gateway designed for mid-sized companies with
up to 500 users, which have single or multiple sites. Check Point Express integrates
firewall, VPN, anti-virus and intrusion prevention capabilities with simple and
centralized management of all security functions.

24

---

---



Safe@Office

Safe@Office
is a unified threat management appliance for small business networks of up to 100 users.
Safe@Office provides integrated firewall, VPN, intrusion prevention, anti-virus, anti-spam
and URL filtering capabilities. Safe@Office products can be managed locally using a Web
browser, or centrally by a Managed Service Provider (MSP) using the Security Management
Portal (SMP) described below. Safe@Office appliances are available in wired and wireless
models.

VPN-1 Edge

You
can see description above, under the caption Enterprise products.

Products
for service providers, data centers and large enterprises:

VPN-1
VSX

VPN-1
VSX is a virtualized security gateway that allows enterprises and service providers to
create up to 250 virtual systems on a single hardware platform. This means that a customer
which manages multiple firewalls and VPNs does not need to purchase separate hardware for
each. Rather, the customer can purchase a single hardware gateway, and then use VPN-1 VSX
software to create numerous firewalls and VPNs on that single piece of hardware. This
reduces the hardware investment needed to achieve security across an entire network and
eases security administration. VPN-1 VSX can be administered by our SmartCenter and
Provider-1 centralized management solutions, which are described below.

FireWall-1
GX

FireWall-1
GX is a security gateway that is designed to protect the network infrastructure of
wireless operators. It protects wireless infrastructure by combining our patented Stateful
Inspection technology with security services specifically designed for Global System for
Mobile communication (GSM) technologies. With FireWall-1 GX, wireless network operators
can offer seamless roaming to their data customers without exposing the network to
potential security threats.

Internal
security

Internal
security is designed to protect corporate networks from security breaches that originate
from inside the network, such as worm outbreaks, internal hacking or misuse of business
applications by users within an organization.

InterSpect

InterSpect
is an internal security gateway that blocks the spread of worms and other attacks that are
introduced from inside the network. InterSpect segments the internal network into multiple
security zones with varied security policies, and controls traffic and user
access between these zones. When InterSpect detects malicious or unauthorized
communications coming from a network segment, it blocks that traffic from reaching other
network segments. InterSpect quarantines computers that generate suspicious activity or do
not comply with security policy, and grants network access only after the problem has been
resolved. InterSpect can be administered by our SmartCenter and Provider-1 centralized
management solutions, which are described below.

25

---

---



Web
security

Web
Security products are designed to help companies take advantage of Web technologies in a
safe and secure manner. Organizations are increasingly dependent on the Web to share
information with customers, connect with business partners and keep employees productive.
The increased dependence on the Web has been accompanied by a significant increase in the
malicious targeting of Web systems for profit and advantage. Whether conducting business
through Web applications or sharing information via SSL VPN, todays businesses need
to rely on the availability and integrity of their Web-based systems.

Connectra

Connectra
is a Web security gateway that provides secure SSL VPN (Secure Socket Layer VPN) remote
access with integrated application and endpoint security in a single, unified solution. It
allows remote users, such as remote employees and business partners, to securely connect
to an organizations network, using any Web browser and without installing client
software. Connectra is available as an appliance or as software for open servers.

Web
Intelligence

Web
Intelligence is an integrated Web application firewall that protects Web-based business
applications from attack. It protects the multiple components that make up a Web
application, including Web servers, communication protocols and databases. It is sold as
an add-on to VPN-1 Pro and is integrated with the Connectra and InterSpect gateways.

SSL
Network Extender

SSL
Network Extender is a browser plug-in that extends SSL VPN remote access to network-based
applications from any Web browser. It enables the convenience of browser-based remote
access while enabling the utilization of software applications that are installed on the
remote computer, such as email clients. It is sold as an add-on to VPN-1 Pro and is
integrated with the Connectra gateways.

Endpoint
security

Our endpoint
security solutions address the risks that hackers, worms, spyware and other threats pose
to the internal and remote computers that access the network. Our solutions provide
centralized management for easy control of endpoint security, and policy-based
enforcement.

Integrity
product family

Our
Integrity products enable enterprises to enforce security policy on desktop and laptop
computers used across the organization. Integrity helps enforce security policies by
enabling administrators to control which computer applications can be used on the network,
screening inbound and outbound traffic for malicious content, detecting and removing
spyware, and securing instant messaging use. Integrity also helps ensure that all
computers in the network are running the latest anti-virus software, or have the latest
security patches installed before they connect to the network. Integrity is controlled
from a centralized management console.

The
Integrity product family includes Integrity, which secures desktops and laptops while
enforcing network access security policy on every computer before it gains access to the
corporate network; Integrity SecureClient, which combines endpoint security capabilities
and desktop firewall with a VPN client; and Integrity Clientless Security, a browser
plug-in version of Integrity that secures computers on demand without requiring a full
software installation.

26

---

---



Integrity
options include Integrity Anti-Spyware for spyware detection and removal; Integrity
Advanced Server, which delivers maximum scalability and reliability through server
clustering; and Integrity IM Security, which offers comprehensive instant messaging (IM)
security that keeps these applications private and secure.

SmartDefense
Program Advisor

The
SmartDefense Program Advisor service provides real-time recommendations to administrators
and end users on which programs should be allowed to run on an endpoint computer. This
service accesses a knowledgebase of tens of thousands of programs that have been
classified as either good or bad. SmartDefense Program Advisor saves administrators the
effort of researching and defining which programs they should allow or deny as part of
their endpoint security policy and helps end users make more accurate decisions on what
programs they should allow to run on their computers.

VPN-1
SecureClient

VPN-1
SecureClient works with our VPN gateways to extend secure remote access to end users. It
encrypts and authenticates data to protect against eavesdropping and data tampering. VPN-1
SecureClient also allows administrators to enforce desktop policies for additional
security, such as protecting corporate networks from unauthorized users gaining access to
the network by first gaining access to a remote user machine.

ZoneAlarm
product family

ZoneAlarm
Security Suite is a complete Internet security solution for individuals and small
businesses, which protects personal computers running the Microsoft Windows operating
systems. ZoneAlarm Security Suite integrates personal firewall, anti-virus and
anti-spyware capabilities, SmartDefense update service, ID and privacy protection, email
security, anti-phishing and anti-spam, instant messaging protection and wireless computer
protection.

Many
of the capabilities offered in the ZoneAlarm Security Suite are also offered as standalone
product offerings. We offer ZoneAlarm, a basic personal firewall, free of charge for
personal and nonprofit use.

Security
management and online services

We
offer a variety of products based on our Security Management Architecture (SMART), which
enables centralized policy configuration, monitoring, logging and reporting for our
perimeter, internal, Web and endpoint security solutions.

SmartCenter

SmartCenter
is our flagship security management solution, providing a single console for centrally
managing security, VPN and network policies and end-user activity. SmartCenter also
provides centralized management and distribution of new defenses, software updates and
licenses. It has the following components:

| | n | SmartDashboard 
is the interface that enables administrators to centrally define and distribute security
              and VPN policies,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | n | SmartView
Tracker provides real-time visual tracking of all logged connections and
administrator activity.
| | - | ----------------------------------------------------------------------------------------------------------

27

---

---



SmartCenter
Pro provides all the capabilities of SmartCenter plus the following additional management
capabilities for the most complex environments:

| | n | SmartLSM,
for management of large-scale VPN and security gateway deployments,
| | - | -----------------------------------------------------------------------------

| | n | SmartUpdate
for centralized distribution of software and license updates,
| | - | -------------------------------------------------------------------------

| | n | SmartMap
for a visual display of network and security deployment,
| | - | -----------------------------------------------------------------

| | n | SmartDirectory
for integration with LDAP information stores for centralized network user management,
| | - | ----------------------------------------------------------------------------------------------------

| | n | SmartView
Monitor for real-time network, VPN and user monitoring, and
| | - | ---------------------------------------------------------------------

| | n | SmartPortal
for Web-based access to SmartCenter.
| | - | ------------------------------------------------

Eventia
product family

Eventia
Analyzer is a comprehensive security event management solution that provides
centralized, real-time correlation of security information from multi-vendor devices in
order to help security administrators respond more quickly and decisively to security
events, such as an attack against the network or an intruder trying to gain unauthorized
access to a critical business application. Automated aggregation and correlation of data
helps improve security incident response by filtering out unimportant information and
automatically prioritizing the most significant threats.

Eventia
Reporter enables security administrators to generate reports on metrics that are
critical to network security operations. It provides centralized reporting on network
utilization, security events and user activity, and consolidates the data into predefined
reports with customizable filters. Eventia Reporter is closely integrated with SmartCenter
and Provider-1, which is described below.

SmartDefense
Services

SmartDefense
Services is a subscription-based service that provides real-time security defense updates,
advisories and recommendations for security administrators. Defense updates add new
capabilities to our products, such as updating anti-virus signature files or providing
protection against newly discovered software vulnerability.

Management
solutions for large-scale enterprises

Provider-1

Provider-1
is a security management product designed for service providers and the very largest
enterprises. It consolidates and centralizes the management of security policies for
thousands of users. Provider-1 enables the administrator to simplify a complex security
policy by dividing it into more manageable sub-policies. These sub-policies match
geographic, functional or other logical groupings. Policies can be applied globally to all
gateways or tailored to meet the needs of individual customers.

Security
Management Portal (SMP)

SMP
is a security management product that is designed for service providers who provide
managed security services for small businesses and for enterprise IT departments that
remotely manage security for their remote or branch locations. SMP enables management of
up to tens of thousands of Safe@Office gateways through a simple, Web-based user
interface.

28

---

---



# Revenues by category of
activity and geographic area

The
following table presents our revenues for the last three fiscal years by category of
activity:

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|
|
|Products and licenses            |                        
|Software subscriptions           |                        
|Support, training and consulting |                        
|                                 |                        
|Total revenues                   |                        
|                                 |                        

Our
revenues for the last three fiscal years by geographic area are set out in Item 5
 Operating and Financial Review and Prospects under the caption
Overview.

# Sales and marketing

We
sell through a wide network of channel partners, including distributors, resellers,
value-added resellers, system integrators and managed services providers. Our agreements
with these channel partners are usually non-exclusive. Almost all of our enterprise sales
are to our channel partners (we rarely sell directly to end users). Most of our sales to
the consumer market are either directly via our Web sites or through retail stores.

We
use various marketing tools to increase awareness and knowledge of our products and to
promote sales. These include our corporate Web sites, seminars and tradeshows that we
organize and participate in, print media and online advertising and telemarketing
campaigns. In addition, we provide current and prospective customers with 30 day software
evaluation licenses to try the products.

We
have strategic relationships with various hardware partners that include server,
workstation, appliance and networking vendors. These include Crossbeam Systems Inc., Dell
Inc., Hewlett-Packard Co., International Business Machines Corporation (IBM), Nokia
Corporation, Nortel Networks Corp., Siemens AG and Sun Microsystems Inc. The purpose of
these relationships is to improve the integration of our security software with hardware
platforms, support our marketing and sales efforts and help increase customer
satisfaction. In addition, these hardware partners provide primary support and training to
their customers.

We
also initiated and continue to maintain our Open Platform for Security (OPSEC) framework,
enabling integration with leading hardware appliances and third-party security software
applications. OPSEC promotes interfaces that allow integration and interoperability
between our products and best of breed complementary technologies. This
enables users to create a complete Internet security architecture. Products that carry the
OPSEC certified and Secured by Check Point seals have been tested
to ensure integration and interoperability. OPSEC partners include both appliance
manufacturers (such as those listed above) and application developers such as Computer
Associates International, Inc., RSA Security, Inc., Trend Micro, Inc. and VeriSign, Inc.

29

---

---



# Customer service and
support

We
operate a worldwide technical services organization, providing a wide range of technical,
customer, educational and professional services. Our technical assistance centers in the
United States and Israel offer worldwide 24-hour service, seven days per week. There are
employees in additional locations supporting our call centers, as well as call centers
operated by third parties.

Our
channel partners generally provide their customers with installation, training,
maintenance and support, while we provide a high-level technical backline support to our
channel partners. Alternatively, our customers may elect to receive support directly from
us. As part of our pre-sale support to our channel partners, we employ technical
consultants and systems engineers who work closely with our channel partners to assist
them with pre-sale configuration, use and application support.

Until
the end of 2003, we generally offered a separate subscription and support program for each
license. Since that time, we have begun offering more comprehensive programs that cover
all of our products in a customers installed base. These new programs offer lower
cost to our customers and achieve greater account coverage. In 2005, the majority of our
subscription and support contracts were based on these new programs.

# Research and product
development

We
believe that our future success will depend upon our ability to enhance our existing
products and develop and introduce new products to address the increasingly sophisticated
needs of our customers. We work closely with existing and potential customers,
distribution channels and major resellers, who provide significant feedback for product
development and innovation. Our product development efforts are focused on providing a
unified security architecture that functions throughout all layers of the network. This
includes enhancements to our current family of products and the continued development of
new products to address perimeter, internal, Web and endpoint security needs and security
management needs. Although we expect to develop most of our new products internally, we
may decide, based upon timing and cost considerations, that it would be more efficient to
acquire or license certain technologies or products from third parties, or to make
acquisitions of other businesses.

Research
and development expenses were $29.3 million in 2003, $44.5 million in 2004 and $50.5
million in 2005. These amounts include stock based compensation related to the Zone Labs
acquisition in the amount of $1.3 million per year in 2004 and 2005. At December 31, 2005
we had 520 employees dedicated to research and development activities and quality
assurance.

# Competition

You
can see more details in Item 3  Key Information under the caption
Risk Factors  We may not be able to successfully compete.

# Proprietary rights

We
use a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our proprietary rights. We rely on trade
secret and copyright laws to protect our software, documentation and other written
materials. These laws provide only limited protection. Further, we generally enter into
confidentiality agreements with employees, consultants, customers and potential customers,
and limit access and distribution of materials and information we consider proprietary.

We
have five U.S. patents and over 25 U.S. patents pending, and additional patent
applications pending worldwide. Our efforts to protect our proprietary rights may not be
adequate or our competitors may independently develop technology that is similar but is
based on our technology.

30

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---



# Effect of government
regulation on our business

You
can see more details in Item 5  Operating and Financial Review and
Products under the caption Taxes on income and in Item 10 
Additional Information under the caption Israeli Taxation, Foreign Exchange
Regulation and Investment Programs.

# Organizational structure

We
are organized under the laws of the State of Israel. We wholly own the subsidiaries listed
below, directly or through other subsidiaries, unless otherwise specified in the footnotes
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 (New York)  
|Check Point Software Technologies Cayman Islands         | Cayman Islands                       
|Zone Labs LLC (3)                                        | United States of America (California)
|Zone Labs Ltd. (4)                                       | United Kingdom                       
|Zone Labs PTE. Ltd. (5)                                  | Singapore                            
|SofaWare Technologies Ltd. (6)                           | Israel                               

---

(1)
          Branch of Check Point Software Technologies Ltd.

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

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

(4)
          Wholly owned by Zone Labs LLC. In process of being merged into a subsidiary of
          Check Point in United Kingdom.

(5)
          Wholly owned by Zone Labs LLC. In process of being merged into a subsidiary of
          Check Point in Singapore.

(6)
          We own 64% of the outstanding equity of SofaWare (62% on a fully diluted basis).
          We also own warrants to acquire shares of SofaWare that allow us to increase our
          holdings to 69% of the outstanding equity of SofaWare (assuming the exercise of
          all of our warrants to acquire shares of SofaWare, but not assuming exercise by
          any other shareholder of Sofaware). Accordingly, we consolidate the financial
          results of SofaWare into our financial statements.

31

---

---



Check
Point Software Technologies (Netherlands) B.V. acts as a holding company. It wholly owns
the principal operating subsidiaries listed below, unless otherwise indicated in the
footnotes 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 (1)                     | 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 (Hong Kong) Ltd. Shanghai office (2) | China                   
|                                                                       |                         
|Check Point Software Technologies (Korea) Ltd.                         | S. Korea                
|Check Point Software Technologies (Finland) Oy                         | Finland                 
|Check Point Yazilim Teknolojileri Pazarlama A.S. (3)                   | Turkey                  
|Check Point Software Technologies (Belgium) S.A                        | Belgium                 
|Check Point Software Technologies (Austria) GmbH                       | Austria                 
|Check Point Software Technologies (India) Private Limited              | India                   
|Check Point Software Technologies (Russia) OOO                         | Russia                  
|Check Point Software Technologies (Belarus) LLC                        | Belarus                 
|Check Point Software Technologies (Taiwan) Ltd. (4)                    | Taiwan                  

---

(1)
          97% owned by Check Point Software Technologies (Netherlands) B.V. and 3% owned
          by Check Point Software Technologies Ltd.

(2)
          Branch of Check Point Software Technologies (Hong Kong) Ltd. Under formation.

(3)
          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.

(4)
          Under formation.

32

---

---



# Property, plants and
equipment

Our
headquarters and principal research and development facilities are located in Ramat-Gan,
Israel, near Tel-Aviv, where we lease approximately 106,000 square feet of office space
pursuant to several lease agreements. All of these leases expire on December 31, 2006
(with options to extend the leases for periods ranging from one to three years). We also
lease a total of approximately 170,000 square feet of office space in the United States.
About 48,000 square feet of this space is in Redwood City, California, approximately
70,000 square feet is in San Francisco, California, approximately 31,000 square feet is
near Dallas, Texas and approximately 21,000 square feet is in field offices. These
facilities are leased for periods of up to five years. In January 2006 we signed an
agreement to lease approximately 28,000 square feet near Dallas, Texas. This new lease
will commence in May 2006 and will replace our existing facility in Dallas, Texas. In
addition, we lease regional office space in Canada, Europe and Asia.

# Principal capital
expenditures and divestitures

For
more information regarding our principal capital expenditures currently in progress, see
Item 5  Operating and Financial Review and Prospects under the caption
Liquidity and Capital Resources.

|ITEM 4A. |  | UNRESOLVED STAFF COMMENTS
|-------- |  | -------------------------

Not
applicable.

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

The
following discussion and analysis is based on our consolidated financial statements,
including the related notes, and should be read in conjunction with them. You can find our
financial statements in Item 18  Financial Statements.

# Overview

We
develop, market and support a wide range of software and combined hardware and software
products and services that enable our customers to communicate securely over IP (Internet
Protocol) networks, primarily targeting those connected to the Internet. Our products and
services protect our customers networks in four areas: perimeter, internal, Web and
endpoint. Perimeter security protects against unauthorized entry and other threats that
are introduced from outside the network. Internal security protects against threats that
are introduced from inside the network. Web security enables remote employees and partners
to connect to an organizations network securely from any Web browser and protects
Web-based business applications. Endpoint security protects personal computers from
hackers, worms, cyber spies (spyware) and data thieves. Our products and services operate
under a unified security architecture, with central management and enforcement of security
policy. Our products and services are sold to enterprises, service providers, small- and
medium-sized businesses and consumers. Our Open Platform for Security (OPSEC) framework,
allows customers to extend the capabilities of our products and services, enabling
integration with leading hardware appliances and third-party security software
applications. Our products are sold, integrated and serviced by a network of partners
around the world.

33

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---



Our
business is subject to the effects of general global economic conditions and, in
particular, market conditions in the information technology (IT) industry and Internet
security industry. During the past few years these economic and market conditions have
reduced the high growth that the Internet security industry had previously experienced. As
a result, the financial results and capital spending levels of many of our customers have
been materially adversely affected. If general economic and industry conditions fail to
improve, or if they deteriorate, demand for our products could be adversely affected.

We
derive most of our revenues from sales of our Internet security products (primarily under
the VPN-1 and related brands), and related software subscriptions, support, training and
consulting. We expect this to continue to be the case in the foreseeable future.

During
each of 2003 and 2004 we derived approximately 13% of our sales from a single distributor.
During 2005 we derived approximately 24% of our sales from two distributors (approximately
12% each).

The
following table presents the percentage of total consolidated revenues that we derive from
sales to each of the regions shown:

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

For
information on the impact of foreign currency fluctuations, you can see Item 11
 Quantitative and Qualitative Disclosures about Market RiskForeign Currency
Risk.

In
October 2005 we announced that we had signed a definitive agreement to acquire
privately-held Sourcefire, Inc., subject to various conditions, and we have not yet
completed this acquisition.  The total consideration for the acquisition is
approximately $225 million. We anticipate this consideration will consist of approximately
$215 million in cash and the assumption of the Sourcefire stock option plan. In addition,
we will assume the cost of additional options issued by Sourcefire after February 15,
2006. The agreement has been approved by the boards of directors of both companies and by
the stockholders of Sourcefire. The closing of the acquisition of Sourcefire is subject to
regulatory approval, for which we have submitted two separate applications with regulatory
authorities in the U.S. We have received United States anti-trust approval and we are
waiting for a determination on our pending application with the Committee on Foreign
Investment in the United States (CFIUS) under the Exon-Florio legislation (Section 5021 of
the Omnibus Trade and Competitiveness Act of 1988), which provides for a 30-day review
following notification of a potential acquisition. CFIUS has the option to extend the
review period for an additional 45-day investigation. In February 2006, CFIUS notified us
that the 30-day review provided by the Exon-Florio legislation had expired and our pending
application had moved into the investigative stage for an additional 45-day
investigation.  Although we are working with CFIUS through the investigative period,
we cannot be certain that the acquisition will be approved or will be approved on the
terms originally negotiated or otherwise acceptable to us. You can see more details in
Item 3  Key Information under the caption Risk Factors 
Risks related to Acquisition.

# Critical accounting
policies and estimates

We
prepare our consolidated financial statements in accordance with generally accepted
accounting principles in the United States (U.S. GAAP). U.S. GAAP requires that we make
estimates and assumptions in certain circumstances that affect the amounts reported in our
consolidated financial statements and related footnotes. We base our estimates on our
experience and various assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates. We believe that the
estimates and assumptions involved in the accounting policies described below have the
greatest potential impact on our financial statements, thus we consider these to be our
critical accounting policies. You can see a summary of all of our significant accounting
policies in Note 2 to our consolidated financial statements.

34

---

---



Revenue
recognition

We
generally derive our revenues from three primary sources:

| | n | new
software licenses,
| | - | ----------------------

| | n | software
subscriptions, and
| | - | ---------------------------

| | n | services
revenues, which include support, training and consulting.
| | - | ------------------------------------------------------------------

The
basis for revenue recognition for new software licenses 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, we recognize revenue when:

| | n | persuasive
evidence of an arrangement for the license of software exists,
| | - | -------------------------------------------------------------------------

| | n | the
products are delivered or services are performed,
| | - | -----------------------------------------------------

| | n | the
price is deemed fixed or determinable and free of contingencies or significant
uncertainties, and
| | - | -----------------------------------------------------------------------------------------------------

| | n | collection
is probable.
| | - | -----------------------

When
we grant certain channel partners longer than customary payment terms, we consider the fee
not to be fixed or determinable. In these cases, we defer revenues and recognize them when
payment becomes due from the channel partners, or when payment is actually collected,
provided that all other revenue recognition criteria have been met.

We
also defer revenues from software subscription and support, and recognize them either in
equal portions over the term of the software subscription and support agreement, or when
services are performed.

We
follow very specific and detailed guidelines, several of which are discussed above, in
measuring revenue; however, certain judgments affect the application of our revenue
recognition policy.

Our
revenue recognition policy takes into consideration the creditworthiness and past
transaction history of each channel partner in determining the probability of collection
as a criterion of revenue recognition. This determination requires the exercise of
judgment, which affects our revenue recognition. If we determine that collection of a fee
is not probable, we defer the revenue recognition until the time collection becomes
probable, which is generally upon receipt of cash.

Revenues
earned on software arrangements involving multiple elements are allocated to each element
based on the residual method. The fair value of the undelivered element is
determined based on objective figures, called Vendor Specific Objective Evidence (VSOE).
The Vendor Specific Objective Evidence of the fair value of the undelivered elements
(including software subscription, support, training and consulting) is generally
determined based on the price charged for the undelivered element when sold separately or
renewed. Such determination is judgmental and for most contracts is based on normal
pricing and discounting practices for those elements in similar arrangements.

35

---

---



Allowance
for doubtful accounts and sales returns

We
maintain an allowance for doubtful accounts for losses that may result from the failure of
our channel partners to make required payments. We estimate this allowance based on our
judgment as to our ability to collect outstanding receivables. We form this judgment based
on an analysis of significant outstanding invoices, the age of the receivables, our
historical collection experience and current economic trends. If the financial condition
of our channel partners were to deteriorate, resulting in their inability to make
payments, we would need to increase the allowance for doubtful accounts. We also record a
provision for estimated sales returns in the same period as we record the related
revenues. We base this estimate on historical sales returns and other factors. If the
historical data used to calculate these estimates do not properly reflect future returns,
we may need to increase the provision for sales returns.

Derivative
and hedge accounting

Most
of our sales are denominated in U.S. dollar, and we incur most of our expenses in U.S.
dollar, Euro and Israeli shekels. We enter into option contracts to hedge our foreign
currency exposure to lower fluctuations in revenue denominated in Japanese Yen and
expenses denominated in Euro. These hedging arrangements are classified as cash flow
hedges. Accordingly, changes in their fair value are recorded in other comprehensive
income. We also enter into forward exchange contracts designated to hedge the fair value
of certain foreign currency denominated assets. The changes in the fair value of these
contracts are recognized in earnings. We estimate the fair value of such derivative
contracts by reference to forward and spot rates and options pricing quoted in
active markets.

Establishing
and accounting for foreign exchange contracts involve judgments, such as determining the
nature of the exposure, assessing its amount and timing, and evaluating the effectiveness
of the hedging arrangement.

Although
we believe that our estimates are reasonable and meet the requirement of hedge accounting,
actual results may differ from these estimates, and such difference could cause
fluctuation of our recorded revenue and expenses.

Legal
contingencies

We
are the defendants in various lawsuits, including employment claims and other legal
proceedings in the normal course of our business. In addition, we received several class
action complaints alleging violations of the federal securities laws. These complaints
were later consolidated by the court into one action. In determining whether provisions
should be recorded for pending litigation claims, we assess the allegations made and the
likelihood that we will successfully defend ourselves. When we believe that it is probable
that we will not prevail in a particular matter, we then estimate the amount of the
provision required based in part on our legal counsels advice.

You
can see more details in Item 8  Financial Information under the caption
Legal proceedings.

Income
taxes and valuation allowance

As
part of the process of preparing our consolidated financial statements, we are required to
estimate our income tax expense in each of the jurisdictions in which we operate. In the
ordinary course of a global business, there are many transactions and calculations where
the ultimate tax outcome is uncertain. This process involves us estimating our actual
current tax exposure, which is accrued as taxes payable, together with assessing temporary
differences resulting from differing treatment of items and for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are
included within our consolidated balance sheet. We may record a valuation allowance to
reduce our deferred tax assets to the amount of future tax benefit that is more likely
than not to be realized.

36

---

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Although
we believe that our estimates are reasonable and that we have considered future taxable
income and ongoing prudent and feasible tax strategies in estimating our tax outcome and
in assessing the need for the valuation allowance, there is no assurance that the final
tax outcome and the valuation allowance will not be different than those which are
reflected in our historical income tax provisions and accruals.

We
have filed or are in the process of filing federal, state and foreign tax returns that are
subject to audit by the respective tax authorities. Although the ultimate outcome is
unknown, we believe that adequate amounts have been provided for and any adjustments that
may result from tax return audits are not likely to materially adversely affect our
consolidated results of operations, financial condition or cash flows.

Realizability
of long-lived assets

We
are required to assess the impairment of long-lived assets, other than goodwill, tangible
and intangible under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, on a periodic basis, when events or changes in circumstances
indicate that the carrying value may not be recoverable. Impairment indicators include any
significant changes in the manner of our use of the assets or the strategy of our overall
business, significant negative industry or economic trends and significant decline in our
share price for a sustained period.

Upon
determination that the carrying value of a long-lived asset may not be recoverable based
upon a comparison of fair value to the carrying amount of the asset, an impairment charge
is recorded. We measure fair value using discounted projected future cash flows.

Goodwill
and other intangible assets

We
follow SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives are no longer amortized but
are subject to periodic impairment tests in accordance with the Statement. Goodwill
impairment is deemed to exist if the net book value of a reporting unit exceeds its
estimated fair value. The total purchase price of business acquisitions accounted for
using the purchase method is allocated first to identifiable assets and liabilities based
on estimated fair values. The excess of the purchase price over the fair value of net
assets of purchased businesses is recorded as goodwill.

We
perform an annual impairment test during the fourth quarter of each fiscal year, or more
frequently if impairment indicators are present. We operate in one operating segment, and
this segment comprises our only reporting unit. In calculating the fair value of the
reporting unit, we use a discounted cash flow methodology, market multiples and market
capitalization. Significant estimates that we use in these fair value methodologies
include estimates of future cash flows, future short-term and long-term growth rates,
weighted average cost of capital and estimates of market multiples of the reportable unit.
Other factors we consider are the brand awareness and the market position of the reporting
unit and assumptions about the period of time we will continue to use the brand in our
product portfolio. If these estimates or their related assumptions change in the future,
we may be required to record impairment charges for our goodwill and intangible assets
with an indefinite life. As of December 31, 2005 no impairment charges were required.

37

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# Results of Operations

The
following table presents information concerning our results of operations in 2003, 2004
and 2005:

|                                                                                                | 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                                                                      |                        
|Acquired in-process R&D                                                                         |                        
|                                                                                                |                        
|Total operating expenses                                                                        |                        
|                                                                                                |                        
|                                                                                                |                        
|Operating income                                                                                |                        
|Financial income, net                                                                           |                        
|                                                                                                |                        
|                                                                                                |                        
|Income before taxes on income                                                                   |                        
|Taxes on income                                                                                 |                        
|                                                                                                |                        
|Net income                                                                                      |                        
|                                                                                                |                        
|                                                                                                |                        
|* Including stock-based compensation
(related to Zone Labs acquisition) in the following items: |                        
|                                                                                                |                        
|Cost of revenues                                                                                |                        
|Research and development                                                                        |                        
|Selling and marketing                                                                           |                        
|General and administrative                                                                      |                        
|                                                                                                |                        
|Total stock-based compensation expenses                                                         |                        
|                                                                                                |                        

38

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The
following table presents information concerning our results of operations as a percentage
of revenues for the periods indicated:

|                                 | 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       |                        
|Acquired in-process R&D          |                        
|                                 |                        
|Total operating expenses         |                        
|                                 |                        
|                                 |                        
|Operating income                 |                        
|Financial income, net            |                        
|                                 |                        
|                                 |                        
|Income before taxes on income    |                        
|Taxes on income                  |                        
|                                 |                        
|Net income                       |                        
|                                 |                        

Revenues

We
derive our revenues from the sale of products and licenses and related software
subscriptions, support, training and consulting. Our revenues were $432.6 million in 2003,
$515.4 million in 2004 and $579.4 million in 2005. The increase in revenues in 2004 was
attributable both to organic growth and to the inclusion of Zone Labs operations
starting in the second quarter of 2004. Revenue in 2005 increased due to growth in our
product sales and the continued strengthening of our subscription and support sales, and
due to the inclusion of Zone Labs operations for a full year. Strengthening of our
subscription and support sales is attributed mainly to greater account coverage of our new
comprehensive subscription and support programs and growth of our SmartDefense service and
the consumer business. We anticipate that revenues in 2006 will continue to increase due
to organic growth and following completion of the anticipated acquisition of Sourcefire.
We cannot assure you, however, that revenues will grow in 2006 due to several factors, any
of which could materially adversely affect our revenues. These factors include the
uncertainty of the global economic conditions, the market acceptance of new products, our
ability to complete and if so, successfully integrate Sourcefire and the level of products
and price competition.

Cost
of revenues

Our
cost of revenues is comprised of the cost of post-sale customer support, training and
consulting. It also includes the cost of freight, software and hardware production,
manuals, packaging and license fees. Cost of revenues was $18.9 million in 2003, $27.8
million in 2004 and $30.5 million in 2005. These amounts include amortization of
intangible assets and stock-based compensation related to the Zone Labs acquisition in the
amount of $4.2 million in 2004 and $5.8 million in 2005. The acquired intangible assets
are amortized over their useful lives on a straight-line basis, which best represents the
distribution of their economic value. In 2004 the increase in cost of revenues was mainly
attributable to the inclusion of expenses of Zone Labs operations and amortization
of intangible assets starting in the second quarter of 2004 and to the increase in sales
of hardware-based products. The increase in cost of revenues in 2005 was attributable
mainly to the inclusion of Zone Labs operations for a full year. We anticipate that
cost of revenues will increase in 2006 in line with an expected growth in revenues derived
from products incorporating hardware and with the inclusion of Sourcefires results
of operations and amortization of intangible assets resulting from the acquisition of
Sourcefire, if completed.

39

---

---



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 $29.3 million in 2003, $44.5
million in 2004 and $50.5 million in 2005. These amounts include stock-based compensation
related to the Zone Labs acquisition in the amount of $1.3 million in 2004 and $1.3
million in 2005. Research and development expenses represent 7% of revenue in 2003, 9% in
2004 and 9% in 2005. In 2004 the increase in these expenses was mainly attributable to the
increase in the number of research and development employees, resulting from the
acquisition of Zone Labs in the second quarter. In 2005 the increase was mainly
attributable to the inclusion of Zone Labs research and development employees for
the full year and to the increase in the number of our other research and development
employees. We anticipate that research and development expenses in 2006 will increase due
to expected additional recruiting of employees, an expected increase in payroll and
related expense, and the acquisition of Sourcefire, if completed.

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 $111.0
million in 2003, $135.7 million in 2004 and $142.3 million in 2005. These amounts include
amortization of intangible assets and stock-based compensation related to the Zone Labs
acquisition in the amount of $2.9 million in 2004 and $2.1 million in 2005. Selling and
marketing expenses represent 26% of revenue in 2003, 26% in 2004 and 25% in 2005. In 2004
these expenses increased mainly due to the inclusion of Zone Labs operations, the
increase in compensation expenses (in line with the increase of revenues), increase in
marketing activities and the continued strengthening of the Euro. In 2005 the increase was
mainly attributable to the inclusion of Zone Labs operations for the full year. The
decrease in selling and marketing expenses as a percentage of revenue in 2005 is
attributable mainly to improved efficiency of the sales force. We anticipate that selling
and marketing expenses will increase in 2006 due to expected increased marketing
activities, expected additional recruiting of employees, an expected increase in payroll
and related expense, and the acquisition of Sourcefire, if completed.

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
$17.6 million in 2003, $24.1 million in 2004 and $24.2 million in 2005. These amounts
represented 4% of revenue in 2003, 5% in 2004 and 4% in 2005. The increase in general and
administrative expenses in 2004 compared to 2003 was mainly due to the inclusion of Zone
Labs operations and a market increase in insurance costs. In 2005 the increase was
mainly attributable to the inclusion of Zone Labs operations for the full year. The
decrease in general and administrative expenses as a percentage of revenue in 2005 is
attributable mainly to improved efficiency. We anticipate that general and administrative
expenses will increase in 2006 due to an expected increase in payroll and related expense,
and the acquisition of Sourcefire, if completed.

40

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In-process
research and development

Upon
the acquisition date of Zone Labs in 2004 we recorded a $23.1 million charge for acquired
in-process research and development (IPR&D). This expense was attributable to projects
which qualified as not yet having reached technological feasibility and with no
alternative future use. The value of IPR&D was determined using the discounted cash
flow approach. The expected future cash flow attributable to IPR&D was discounted at
25%. At the time of the acquisition of Zone Labs we estimated that these IPR&D
projects were 32% complete and would be completed over the following 3 years.

Deferred
stock-based compensation

In
conjunction with the acquisition of Zone Labs we recorded deferred stock-based
compensation in the amount of $16.6 million. This amount represents the intrinsic value of
approximately 2.8 million options to purchase our ordinary shares that we issued in
exchange for Zone Labs unvested stock options. This amount is included in the total
fair value of Zone Labs options assumed of $50.4 million. Deferred stock-based
compensation is recognized over the remaining vesting period of the related options.
Stock-based compensation associated with these options amounted to $4.6 million in 2004
and $3.7 million in 2005. We anticipate incurring additional compensation expense, as a
result of the adoption of SFAS No. 123(R). The adoption of SFAS No. 123(R) will have a
material adverse effect on our results of operations, although it will have no impact on
our overall financial position or cash flows.

Operating
margin

We
may experience future declines in operating margins from historical levels due to the
following reasons:

| | n | increased
competition that will result in pressure on us to reduce prices,
| | - | --------------------------------------------------------------------------

| | n | additional
investments in the continuing development and expansion of our sales and marketing
organization, including the expansion of our field organization both in the United States
and additional countries in Europe, Asia and Latin America,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | integration
 of an acquired  business that at the time of  acquisition  has  operating  margins lower
than               ours,
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | n | additional
expansion of our research and development organization,
| | - | ------------------------------------------------------------------

| | n | changes
to the treatment of stock option compensation due to the adoption of SFAS No. 123(R), and
| | - | -------------------------------------------------------------------------------------------------

| | n | expected
growth in the percentage of revenues that we derive from products incorporating hardware,
which have lower operating margins than software products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

The
amount and timing of these factors are likely to result in fluctuations in operating
margins.

Financial
income, net

Financial
income, net consists primarily of interest earned on cash equivalents and marketable
securities. Financial income, net was $43.5 million in 2003, $44.8 million in 2004 and
$54.2 million in 2005. Interest income is heavily dependent on prevailing U.S. interest
rates. In 2004 financial income, net increased slightly as a result of rising interest
rates, despite the decrease in our average cash levels due to the amount we paid in the
Zone Labs acquisition and the share repurchase programs executed in 2004. The increase in
2005 is attributable mainly to the continued rise in interest rates.

41

---

---



Taxes
on income

Our
effective tax rate was 18.5% in 2003, 18.6% in 2004 and 17.2% in 2005. These relatively
low tax rates were mainly achieved as a result of the Approved Enterprise status granted
to our production facilities in Israel. Our effective tax rate may increase in 2006, as a
result of the amendment to the Investment Law. We are currently evaluating the impact the
amendment will have on us. Based on our preliminary analysis, it may materially adversely
affect our 2006 financial statements.

We
have elected the alternative package of tax exemptions and reduced tax rates for our
production facilities that have received Approved Enterprise status. Accordingly, income
derived from these facilities is generally entitled to a tax-exemption period of two years
and a reduced corporate tax rate of 10% to 25% for an additional period of eight years,
based on our percentage of foreign investment. The tax benefits for our existing Approved
Enterprise programs are scheduled to gradually expire by 2013. The period of tax benefits
for each capital investment plan expires upon the earlier of: (1) twelve years from
completion of the investment under the approved plan, or (2) fourteen years from receipt
of approval.

Out
of our retained earnings as of December 31, 2005, approximately $661 million are
tax-exempt. If we were to distribute this tax-exempt income before our complete
liquidation, it would be taxed at the reduced corporate tax rate applicable to these
profits (10% to 25%), and an income tax liability of up to approximately $165 million
would be incurred. Our board of directors has determined that we will not distribute any
amounts of our undistributed tax exempt income as dividend. We intend to reinvest our
tax-exempt income and not to distribute such income as a dividend. Accordingly, no
deferred income taxes have been provided on income attributable to our Approved Enterprise
program as the undistributed tax exempt income is essentially permanent in duration.

If
we fail to meet the requirements of an Approved Enterprise we would be subject to
corporate tax in Israel at the regular statutory rate. We could also be required to refund
tax benefits, with interest and adjustments for inflation based on the Israeli consumer
price index.

On
April 1, 2005, an amendment to the Investment Law came into effect, which revised the
criteria for investments qualified to receive tax benefits. An eligible investment program
under the amendment will qualify for benefits as a Privileged Enterprise (rather than the
previous terminology of Approved Enterprise). Among other things, the amendment provides
tax benefits to both local and foreign investors and simplifies the approval process. The
amendment does not apply to investment programs approved prior to December 31, 2004. The
new tax regime will apply to new investment programs only.

As
a result of the amendment, tax-exempt income generated under the provisions of the new law
will subject us to taxes upon distribution or liquidation and we may be required to record
deferred tax liability with respect to such tax-exempt income.

You
can see more details in Item 10  Additional Information under the
caption Israeli Taxation, Foreign Exchange Regulation and Investment Programs
and Item 3  Key Information under the caption The tax benefits
available to us under Israeli law require us to meet several conditions, and may be
terminated or reduced in the future, which would increase our taxes.

42

---

---



# Quarterly Results of
Operations

The
following tables set forth certain unaudited consolidated statements of income data for
each of the quarters in 2004 and 2005, as well as the percentage of our revenues
represented by each item. We prepare our unaudited consolidated financial statements on
the same basis as our audited consolidated financial statements and include all
adjustments (consisting only of normal recurring adjustments) that we consider necessary
for a fair presentation of such information. You should read this information in
conjunction with our consolidated financial statements, including the related notes,
appearing in Item 18  Financial Statements.

|                               | Year Ended December 31, 2004 | Year Ended December 31, 2005
|------------------------------ | ---------------------------- | ----------------------------
|
|
|
|
|Revenues                       |                              |                             
|                               |                              |                             
|Operating expenses:            |                              |                             
|Cost of revenues               |                              |                             
|Research and development       |                              |                             
|Selling and marketing          |                              |                             
|General and administrative     |                              |                             
|Acquired in-process R&D        |                              |                             
|                               |                              |                             
|Total operating expenses       |                              |                             
|                               |                              |                             
|Operating income               |                              |                             
|Financial income, net          |                              |                             
|                               |                              |                             
|Income before taxes on income  |                              |                             
|Taxes on income                |                              |                             
|                               |                              |                             
|Net Income                     |                              |                             
|                               |                              |                             
|                               |                              |                             
|Basic earnings per share       |                              |                             
|Shares used in computing basic |                              |                             
|earnings per share             |                              |                             
|Diluted earnings per share     |                              |                             
|Shares used in computing       |                              |                             
|diluted earnings per share     |                              |                             

---

|(1) | Including
pre-tax charges for amortization of intangible assets and deferred
               stock-based compensation of $2.6 million in first quarter of 2005 (related
to                Zone Labs acquisition).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Including
pre-tax charges for amortization of intangible assets and deferred
               stock-based compensation of $3.1 million in second quarter of 2004 and
$2.4                million in second quarter of 2005 (related to Zone Labs acquisition).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Including
pre-tax charges for amortization of intangible assets and deferred
               stock-based compensation of $2.9 million in the third quarter of 2004 and
$2.2                million in the third quarter of 2005 (related to Zone Labs
acquisition).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Including
pre-tax charges for amortization of intangible assets and deferred
               stock-based compensation of $2.8 million in the fourth quarter of 2004 and
$2.2                million in fourth quarter of 2005 (related to Zone Labs acquisition).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

---

---



As
a percentage of revenues:

|                                | Year Ended December 31, 2004 | Year Ended December 31, 2005
|------------------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Revenues                        |                              |                             
|                                |                              |                             
|Operating expenses:             |                              |                             
|Cost of revenues                |                              |                             
|Research and development        |                              |                             
|Selling and marketing           |                              |                             
|General and administrative      |                              |                             
|Acquired in-process R&D         |                              |                             
|                                |                              |                             
|Total operating expenses        |                              |                             
|                                |                              |                             
|Operating income                |                              |                             
|Financial income, net           |                              |                             
|                                |                              |                             
|Income before taxes on income . |                              |                             
|Taxes on income                 |                              |                             
|                                |                              |                             
|Net Income                      |                              |                             
|                                |                              |                             

Our
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:

| | n | changes
in customer capital spending budgets and its allocation throughout the year,
| | - | ------------------------------------------------------------------------------------

| | n | seasonal
trends in customer purchasing,
| | - | ---------------------------------------

| | n | the
occurrence of Internet security breaches or threats,
| | - | --------------------------------------------------------

| | n | the
timing and success of new product and new technologies introduced by us or our
competitors,
| | - | -----------------------------------------------------------------------------------------------

| | n | regional
or global economic and political conditions,
| | - | -----------------------------------------------------

| | n | our
ability to integrate the technology and operations of acquired businesses with our own
business, and
| | - | --------------------------------------------------------------------------------------------------------

| | n | fluctuations
in foreign currency exchange rates.
| | - | ------------------------------------------------

Our
revenues are subject to seasonal fluctuations related to the slowdown in spending
activities in Europe for the third quarter and the increased activity related to the
year-end purchasing cycles of many users of our products. We believe that we will continue
to encounter quarter-to-quarter seasonality.

Our
expense levels are based, in part, on expectations as to future revenues. If our revenue
levels are below expectations, our operating results are likely to be adversely affected,
since most of our expenses are not variable. As a result, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to the factors described above, it
is likely that in some future quarter our operating results may be below the expectations
of public market analysts and investors. In this event, the price of our ordinary shares
would likely decline significantly.

44

---

---



# Recently Issued
Accounting Standards

In
December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No.
123 (revised 2004) (SFAS No. 123(R)), Share-Based Payment, which is a revision
of SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values beginning in the first quarter of 2006. Pro
forma disclosure is no longer an alternative. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 (SAB No. 107), which provides
supplemental implementation guidance on SFAS No. 123(R).

We
have the option to choose either the modified prospective or modified retrospective
method. We currently expect to adopt SFAS No. 123(R) using the modified retrospective
method of adoption. This method requires that compensation expense be recorded over the
expected remaining life of all unvested stock options and restricted stock, and for any
new grants thereof at the beginning of the first quarter of adoption of SFAS No. 123(R).
Prior periods will be restated to recognize compensation cost in the amount previously
reported in the pro forma footnote disclosures under SFAS No. 123.

As
permitted by SFAS No. 123, we currently account for share-based payments to employees
using APB No. 25s intrinsic value method and, as such, generally recognize no
compensation cost for employee stock options. Accordingly, the adoption of the SFAS No.
123(R) fair value method will have a significant impact on our consolidated results of
operations, although it will have no impact on our overall consolidated financial position
or consolidated cash flows. However, our assessment of the estimated compensation charges
is affected by our stock price as well as assumptions regarding a number of complex and
subjective variables and the related tax impact. These variables include, but are not
limited to, the volatility of our stock price and employee stock option exercise
behaviors. Had we adopted SFAS No. 123(R) in prior periods, the impact of that standard
would have approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income and earnings per share in Note 2 to our consolidated financial
statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after adoption.
While we cannot estimate what those amounts will be in the future (because they depend on
when employees exercise stock options, among other things), the amount of operating cash
flows recognized in prior periods for such excess tax deductions were $12.6 million in
2003, $1.2 million in 2004 and $12.6 in 2005.

# Liquidity and capital
resources

We
have financed our operations through cash generated from operations. Our cash and cash
equivalents and short-term investments were $954.2 million as of December 31, 2004 and
$1,342.8 million as of December 31, 2005. Our long-term interest bearing investments were
$623.1 million as of December 31, 2004 and $382.5 million as of December 31, 2005. Our
total cash and cash equivalents, short-term investments and long-term interest bearing
investments were $1,577.3 million as of December 31, 2004 and $1,725.3 million as of
December 31, 2005. At the end of 2002 we established a wholly owned subsidiary in
Singapore to manage our financial assets. This subsidiary currently holds the majority of
our investments. We generated net cash from operations of $290.9 million in 2003, $302.0
million in 2004 and $358.0 million in 2005. Net cash from operations for 2003 consisted
primarily of net income adjusted for non cash activity, increases in deferred revenues,
employees and payroll accruals, accrued expenses and other liabilities. Net cash from
operations for 2004 consisted primarily of net income adjusted for non cash activity
including acquired in-process research and development, plus increases in deferred
revenue, employees and payroll accruals, which were offset by decreases in accrued
expenses and other liabilities and increases in trade receivables. Net cash from
operations for 2005 consisted primarily of net income adjusted for non cash activity, plus
increases in deferred revenue, which were offset by increases in trade receivables and
decreases in employee and payroll accruals.

45

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Net
cash used in investing activities was $425.9 million in 2003, $256.7 million in 2004 and
$39.9 million in 2005. In 2003 net cash used in investing activities consisted primarily
of investments in marketable securities of varying maturities offset by proceeds from
marketable securities and bank deposits. Excess cash is invested depending on our
projected cash needs for operations, capital purchases and other business purposes. In
2004 net cash used in investing activities included, in addition to the above, net cash
paid in conjunction with the acquisition of Zone Labs in the amount of $95.3 million. In
2005 net cash used in investing activities consisted primarily of investments in
marketable securities offset by proceeds from marketable securities. In 2006 we anticipate
to use approximately $215 million in cash to acquire Sourcefire, if the acquisition is completed. Our capital expenditures
amounted to $3.0 million in 2003, $4.5 million in 2004 and $4.9 million in 2005.
Currently, our capital expenditures consist primarily of computer equipment and software
for our research and development and technical service organization efforts, as well as
increasing infrastructure to enable operation expansion.

Net
cash provided by (or used in) financing activities was approximately $17.7 million in
2003, $(210.1) million in 2004 and $(182.0) million in 2005. Net cash from financing
activities in 2003 was primarily as a result of proceeds we received from the exercise of
stock options. In 2004 and 2005 net cash used in financing activities was attributed
primarily to the purchase of treasury shares. Our board of directors approved three
programs to repurchase ordinary shares. Each program authorized the repurchase of up to
$200 million. The first program was announced on October 28, 2003 and ended on August 24,
2004. The second program was announced on October 28, 2004 and ended on May 31, 2005. The
third program was announced on July 25, 2005 and is still in effect. Under the repurchase
programs we may purchase our ordinary shares from time to time, depending on market
conditions, share price, trading volume and other factors. We fund the share purchases
from available working capital. The repurchase programs have no time limit and may be
suspended from time to time or discontinued. Under our repurchase programs described
above, during 2004 we purchased a total of 12.0 million shares at a total cost of $244.6
million, at an average price of $20.40 per share. In 2005 we purchased a total of 10.6
million shares at a total cost of $236.9 million, at an average purchase price of $22.38
per share.

Until
2005, debt securities were classified as held-to-maturity as we had the positive intent
and ability to hold the securities to maturity and were stated at amortized cost.

In
2005, debt securities are classified as available for sale. Available for sale securities
are carried as fair value, with the unrealized gains and losses, net of tax, reported in
other comprehensive income.

Our
principal sources of liquidity consist of our cash and cash equivalents and marketable
securities (which aggregated $1,725.3 million as of December 31, 2005), our cash flow from
operations and our net financial income. We believe that these sources of liquidity will
be sufficient to satisfy our capital requirements for the foreseeable future.

46

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# Research and
development, patents and licenses, etc.

You
can see more details in this Item 5, under the caption Result of Operations.

# Trend information

You can
see more details in this Item 5, under the caption Result of Operations.

# 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.

# Disclosure of
contractual obligations

The
following table summarizes our material contractual obligations as of December 31, 2005:

|                            | Payments due by period
|--------------------------- | ----------------------
|
|
|
|
|Operating Lease Obligations |                       
|Severance pay*              |                       
|                            |                       
|Total                       |                       
|                            |                       

---

| | *
Severance pay relates to accrued severance obligations to our Israeli employees as
required under Israeli labor law. These obligations are payable only upon termination,
retirement or death of the respective employee and there is no obligation if the employee
voluntarily resigns. Of this amount, only $2,784 is unfunded.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
October 2005 we announced the execution of a definitive agreement to acquire Sourcefire,
for a total consideration of approximately $225 million. You can see a summary of our
obligation to acquire Sourcefire in this Item 5, under the caption Overview.
This summary is qualified in its entirety by the text of the Agreement and Plan of Merger
by and among Check Point Software Technologies Ltd., Check Point Software Technologies,
Inc., Seyfert Acquisition Corporation, and Sourcefire, Inc., dated as of October 5, 2005,
which is filed as Exhibit 4.11 to this Form 20-F.

47

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

# Directors and senior
management

Our
directors and executive officers as of December 31, 2005 were as follows:

|Name           | Position                   | IndependentDirector (1) | OutsideDirector(2) | Member ofAuditCommittee | Member ofCompensationCommittee | Member ofNominatingCommittee
|-------------- | -------------------------- | ----------------------- | ------------------ | ----------------------- | ------------------------------ | ----------------------------
|
|
|
|
|Gil Shwed      | Chief Executive Officer    |                         |                    |                         |                                |                             
|               | and Chairman of the       
|               | Board                      |                         |                    |                         |                                |                             
|              
|Marius Nacht   | Senior Vice President and 
|               | Vice Chairman of the      
|               | Board                      |                         |                    |                         |                                |                             
|              
|Jerry Ungerman | Vice Chairman of the Board |                         |                    |                         |                                |                             
|              
|Eyal Desheh    | Executive Vice President  
|               | and Chief Financial       
|               | Officer                    |                         |                    |                         |                                |                             
|              
|Irwin Federman | Director                   | P                       | P                  | P                       | P                              | P                           
|              
|Ray Rothrock   | Director                   | P                       | P                  | P                       | P                              | P                           
|              
|David Rubner   | Director                   | P                       |                    | P                       |                                | P                           
|              
|Tal Shavit     | Director                   | P                       |                    |                         |                                | P                           

|(1) | Independent Director under the applicable rules of the Securities
          and Exchange Commission and the NASDAQ National Market regulations (see
          explanation below)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Outside Director as required by Israels Companies Law (see
          explanation below)
|--- | ------------------------------------------------------------------------------------------

Gil
Shwed, one of our co-founders, has served on our board of directors and as our Chief
Executive Officer since we were founded in 1993. Since 1998 Mr. Shwed has also served as
the Chairman of our board of directors. From 1993 until 2001 he served as our President.
Mr. Shwed has received numerous prestigious accolades for his individual achievements and
industry contributions, including an honorary Doctor of Science from the Technion 
Israel Institute of Technology, the World Economic Forums Global Leader for Tomorrow
for his commitment to public affairs and leadership in areas beyond immediate professional
interests, and the Academy of Achievements Golden Plate Award for his innovative
contribution to business and technology.

Marius
Nacht, one of our co-founders, has served on our board of directors since we were founded in 1993.  Since
1999 he has served as our Senior Vice President and since 2001 he has also served as Vice Chairman of our board
of directors.  Mr. Nacht earned a B.S. cum laude in Physics and Mathematics from the Hebrew University of
Jerusalem, and he earned an M.S. in Electrical Engineering and
Communication Systems from Tel Aviv University.

Jerry
Ungerman was appointed Vice Chairman of our board of directors in 2005, and he is
responsible for leading our partner and customer relations. From 2001 until 2005 he served
as our President and before that, from 1998 until 2000, he served as our Executive Vice
President. Prior to joining us, Mr. Ungerman accumulated more than 30 years of high-tech
sales, marketing and management experience at Hitachi Data Systems (HDS). He began his
career with IBM after earning a bachelors degree in Business Administration from the
University of Minnesota.

48

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Eyal
Desheh has been our Chief Financial Officer since 2000 and he has also served as our
Executive Vice President since 2005. Mr. Desheh is responsible for our worldwide financial
and operational management, consumer business management and business development. From
1996 until 2000 he served as Chief Financial Officer of Scitex Corporation Ltd., a world
leader in digital imaging solutions for graphics communications. Before joining Scitex, he
served in numerous financial management and business development roles including Vice
President for business development and strategy at Bezeq  The Israeli
Telecommunications Corp., Ltd., Deputy Chief Financial Officer of Teva Pharmaceutical
Industries Ltd., President of H.L. Financial Services Ltd. and Vice President of Bank
Hapoalim New York. Mr. Desheh earned a bachelors degree in Economics and an MBA in
Finance, both from the Hebrew University of Jerusalem. Mr. Desheh also serves as a
director of ECI Telecommunications Ltd.

Irwin
Federman has served on our board of directors since 1995. Mr. Federman has been a General
Partner of U.S. Venture Partners, a venture capital firm, since 1990. Mr. Federman serves
as director of SanDisk Corp. and a number of private companies. Mr. Federman received a
B.S. in Economics from Brooklyn College.

Ray
Rothrock has served on our board of directors since 1995. Mr. Rothrock is Managing General
Partner of Venrock Associates, a venture capital firm, where he has been a member since
1988 and a general partner 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.

David
Rubner has served on our board of directors 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 fund. Before Mr.
Rubner started Rubner Technology Ventures, he served as President and Chief Executive
Officer of ECI Telecommunications Ltd. Previously, he held various management positions in
ECI Telecommunications. 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. In 1995
he received the Industry Prize. Mr. Rubner serves as a director of Koor Industries, Lipman
Transaction Solutions Ltd., Elbit Imaging Ltd., TeleMessage Ltd. and a number of private
companies. In addition, Mr. Rubner is a member of the Board of Trustees of Bar-Ilan
University and Shaare Zedek hospital.

Dr.
          Tal Shavit has served on our board of directors 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 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.

Of
the individuals mentioned above, only Gil Shwed and Marius Nacht owned more than one
percent of our outstanding shares as of December 31, 2005. You can see more details in
this Item 6, under the caption Share Ownership and in Item 7 
Major Shareholders and Related Party Transactions.

Some
of our directors are board members of multiple companies, some of which may be technology companies.
Currently we dont see an existing conflict of interest.

The
term of each director will expire in 2006. At that time Irwin Federman and Ray Rothrock
will be completing their second terms as our outside directors under the Israeli Companies
Law and will not be eligible for reelection to our board of directors.

49

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Compensation
of directors and officers

The
total direct compensation that we accrued for our directors and executive officers as a
group for each of the years ended December 31, 2004 and 2005 was approximately $3.2
million. This does not include amounts we expensed for business travel, professional and
business association dues and other business expenses reimbursed to officers. We do not
have any agreements with our directors who are also officers that provide for benefits
upon termination of employment, except for severance payments mandated by Israeli law for
all employees employed in Israel. In addition, only directors who are not officers receive
compensation for serving as directors. From time to time we grant options under our stock
option and equity incentive plans (described below) to our executive officers and
directors. Option grants to directors who are not officers are made pursuant to the
automatic option grant program under these plans, while option grants to directors who are
officers are made only with audit committee, board of directors and shareholder approval.
As of December 31, 2005, our executive officers and directors held options to purchase an
aggregate of approximately 18.0 million shares under our stock option and equity incentive
plans. The exercise prices of these options range between $9.83 and $79.79, and their
expiration dates range between July 2006 and September 2012. Other than as specified 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 our
outstanding shares.

# Board practices

Our
board of directors currently consists of seven members. Under our articles of association,
the board is to consist of between six and twelve members. Each director (other than an
outside director, as described 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 the board of directors and serves at the discretion of the board. All of our
officers and directors, other than non-employee directors, devote substantially all of
their working time to our business. There are no family relationships among any of our
directors, officers or key employees.

Our
articles of association provide that any director may, by written notice to us, appoint
another person to serve as an alternate director or may cancel the appointment of an
alternate director. Any person eligible to serve as a director, 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, for a specified
period or until notice is given of the cancellation of the appointment. To our knowledge,
no director intends to appoint any other person as an alternate director.

Outside
and independent directors

Outside
directors. In accordance with the Israeli Companies Law and the relevant regulations,
we must have at least two outside directors who meet the statutory requirements of
independence. An outside director serves for a term of three years, which may be extended
once for an 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 audit committee, and at least one outside director must serve on each
committee of the board of directors. Irwin Federman and Ray Rothrock are our outside
directors under the Israeli Companies Law. Their second and final term of office will
expire in 2006.

Independent
directors. The Sarbanes-Oxley Act of 2002, as well as related new rules subsequently
implemented by the Securities and Exchange Commission and the Nasdaq National Market,
require issuers to comply with various corporate governance practices. Under the rules
applicable to us as a foreign private issuer, we are required to have at least three
independent directors within the meaning of the applicable Nasdaq National Market
regulations. Our board of directors complies with these requirements by including a
majority of members who are independent, and our audit committee consists of three
directors, all of whom are independent. Irwin Federman, Ray Rothrock, David Rubner and Tal
Shavit are our independent directors under the applicable Nasdaq National Market
regulations. Our independent directors have regularly scheduled meetings at which only
independent directors are present.

50

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Committees
of the board of directors

Our
articles of association provide that the board of directors may delegate all of its powers
to committees of the board as it deems appropriate, subject to the provisions of Israeli
law. Our board of directors has established an audit committee, compensation committee and
nominating committee.

Audit
committee. Under the Israeli Companies Law, the board of directors of any public
company must establish an audit committee. The audit committee must consist of at least
three directors and must include all of the outside directors. The audit committee may not
include the chairman of the board, any director whom we employ or who provides services to
us on a regular basis, a controlling shareholder or certain relatives of a controlling
shareholder. In addition, the listing requirements of the Nasdaq National Market also
require us to maintain an audit committee consisting of at least three directors, all of
whom must be independent under the Nasdaq National Market listing requirements. Irwin
Federman, Ray Rothrock and David Rubner serve as the members of our audit committee. In
2003 the audit committee adopted an audit committee charter as required by the Nasdaq
National Market listing requirements.

The
audit committees duties include providing assistance to the board of directors in
fulfilling its legal and fiduciary obligations in matters involving our accounting,
auditing, financial reporting, internal control and legal compliance functions. In this
respect the audit committee approves the services performed by our independent accountants
and reviews their reports regarding our accounting practices and systems of internal
accounting controls. The audit committee also oversees the audit efforts of our
independent accountants and takes those actions as it deems necessary to satisfy itself
that the accountants are independent of management. Under the Israeli Companies Law, the
audit committee also is required to monitor whether there are any deficiencies in the
administration of our company, including by consulting with the internal auditor, and to
review and approve related party transactions.

Compensation
committee. Our compensation committee consists of Irwin Federman and Ray Rothrock. The
compensation committees duties include making recommendations to the board of
directors regarding the issuance of employee equity incentives under our equity incentive
plans, and determining salaries and bonuses for our executive officers and incentives for
our other employees. In 2004 the compensation committee adopted a compensation committee
charter.

Nominating
committee. The nominating committee identifies prospective board candidates,
recommends nominees for election to our board of directors, develops and recommends board
member selection criteria, considers committee member qualification, supervises the
selection and composition of committees of our board of directors and provides oversight
in the evaluation of our board of directors and each committee. Our nominating committee
consists of Irwin Federman, Ray Rothrock, David Rubner and Tal Shavit. In 2005 the
nominating committee adopted a nominating committee charter.

51

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# Employees

As
of December 31, 2005, we had 1,414 employees.

Over
the past three years, the number of our employees by function was as follows:

|                                                | Year Ended December 31,
|----------------------------------------------- | -----------------------
|
|
|
|
|Research, development, and quality assurance    |                        
|Marketing, sales and business development       |                        
|Customer support                                |                        
|Information systems, administration and finance |                        
|                                                |                        
|Total                                           |                        
|                                                |                        

From
time to time, we also engage a limited number of consultants, subcontractors and temporary
help. As of December 31, 2005, we had 64 people of this nature.

Over
the past three years, the number of our employees by geographic area was as follows:

|                  | Year Ended December 31,
|----------------- | -----------------------
|
|
|
|
|Israel            |                        
|United States     |                        
|Rest of the World |                        
|                  |                        
|Total             |                        
|                  |                        

We
are subject to Israeli labor laws and regulations with respect to our Israeli employees.
The Israeli labor laws differ materially from U.S. labor laws and, in some cases, impose
material obligations on us (such as severance pay and mandatory cost of living increases).
We believe that we have sufficient provisions in respect of these obligations. We are
subject to the labor laws and regulations of other jurisdictions in the world where we
have employees.

# Share Ownership

The
following table shows information regarding beneficial ownership by our directors and
executive officers as of December 31, 2005. Beneficial ownership is determined in
accordance with rules of the Securities and Exchange Commission.

All
information with respect to the beneficial ownership of any principal shareholder has been
furnished by such shareholder and, unless otherwise indicated below, we believe that
persons named in the table have sole voting and sole investment power with respect to all
the shares shown as beneficially owned, subject to community property laws, where
applicable. The shares beneficially owned by the directors include the shares owned by
their family members to which such directors disclaim beneficial ownership.

The
share numbers and percentages listed below are based on 244,309,929 shares outstanding as
of December 31, 2005.

52

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|Name                       | Number of
Shares
beneficially
owned (1) | % of
class of
shares
(2) | Title of
securities
covered by the
options | Number of
options (3) | Exercise
Price | Date of Expiration   
|-------------------------- | --------------------------------------- | ------------------------ | ------------------------------------------ | --------------------- | -------------- | ---------------------
|
|
|
|
|Gil Shwed                  | 31,114,112                              | 12.4%                    | Ordinary shares                            | 6,159,015             | $9.83-42.31    | 07/04/2006-09/26/2012
|Marius Nacht (4)           | 26,260,811                              | 10.6%                    | Ordinary shares                            | 3,759,015             | $9.83-42.31    | 07/04/2006-09/26/2012
|All directors and officers
|as a group (8 persons     
|including Messrs. Shwed   
|and Nacht)                 | 60,354,153                              | 23.5%                    | Ordinary shares                            | 12,649,530            | $9.83-79.79    | 07/04/2006-09/26/2012

---

|(1) | The
number of ordinary shares shown includes shares that each shareholder has
               the right to acquire pursuant to stock options that are exercisable within
60                days after December 31, 2005 (as determined in accordance with footnote
(3)).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | If
a shareholder has the right to acquire shares by exercising stock options (as
               determined in accordance with footnote (3)), these shares are deemed
outstanding                for the purpose of computing the percentage owned by the
specific shareholder                (that is, they are included in both the numerator and
the denominator) but they                are disregarded for the purpose of computing the
percentage owned by any other                shareholder.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Number
of options immediately exercisable or exercisable within 60 days from
               December 31, 2005. The exercise price of some of these options is greater
than                our current share market price.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In
addition to the position stated in the table, Mr. Nacht is the beneficiary of
               a trust that as of May 2005, the date on which the trust was established
by Mr.                Nacht, held 1,000,000 ordinary shares. Mr. Nacht does not control
the trust and                has limited access to information concerning activities and
holdings of the                trust. The trust is irrevocable and is scheduled to expire
May 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each
of Messrs. Ungerman, Desheh, Federman, Rothrock, Rubner and Dr. Shavit beneficially owns
less than one percent of our outstanding ordinary shares.

# Equity incentive plans

In
2005 we adopted two new equity incentive plans: our 2005 United States Equity Incentive
Plan, which we refer to as the 2005 U.S. Plan, and our 2005 Israel Equity Incentive Plan,
which we refer to as the 2005 Israel Plan. Both of these plans will be in effect until
2015. Following ratification of the new plans by our shareholders in September 2005, we
stopped issuing stock options under our 1996 United States Stock Option Plan and 1996
Israel Stock Option Plan.

Number
of ordinary shares reserved for future grants under 2005 plans

We
initially reserved a total of 50,000,000 ordinary shares for future grants under the 2005
U.S. plan and the 2005 Israel plan (20,000,000 ordinary shares under the 2005 U.S. Plan
and 30,000,000 ordinary shares under the 2005 Israel Plan). These are in addition to the
shares issuable upon the exercise of options outstanding under our 1996 United States
Stock Option Plan, our 1996 Israel Stock Option Plan, the Zone Labs 1998 Stock Option Plan
and our Employee Stock Purchase Plan, which are described in greater detail below.
Beginning in January 2006, this number will increase automatically by an aggregate of
5,000,000 shares a year for both plans combined, of which 2,000,000 ordinary shares will
be added each January 1st to the number of shares reserved under the 2005 U.S.
Plan and 3,000,000 ordinary shares will be added each January 1st to the number
of shares reserved under the 2005 Israel Plan.

53

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Any
ordinary shares subject to options under our 2005 U.S. Plan or 2005 Israel Plan will be
deducted from the number of ordinary shares reserved for issuance under that plan. If any
ordinary shares are issued as Restricted Stock, RSUs or Performance Shares under our 2005
U.S. Plan or 2005 Israel Plan, and they have a per share or unit purchase price lower than
100% of the fair market value on the date of grant, twice this number of ordinary shares
will be deducted from the number of ordinary shares reserved for issuance under that plan.
Shares that are issued pursuant to any award under our 2005 U.S. Plan or 2005 Israel Plan
will not be returned to the plan. However, if an award under our 2005 U.S. Plan or 2005
Israel Plan expires or becomes unexercisable without having been exercised in full, or
with respect to Restricted Stock, RSUs or Performance Shares is forfeited to or
repurchased by us at its original price due to its failure to vest, the shares that were
subject to the award become available for future grant or sale under that plan.

As
of December 31, 2005 we had issued options for an aggregate of 1,632,630 ordinary shares
under the 2005 U.S. Plan and the 2005 Israel plan combined, of which options for 1,618,330
ordinary shares were outstanding on that date. The option exercise prices range between
$21.50 and $23.19 per share.

Administration

Both
the 2005 U.S. Plan and the 2005 Israel Plan are administered by our board of directors or
a committee of our board. The administrator has full power to determine the persons to
whom awards shall be granted and the other terms of the awards granted, including
(a) the number of shares subject to each grant, (b) the duration of the related
award agreement, (c) the time, manner and form of payment upon the exercise of an
award, and (d) other terms and provisions governing the awards. The administrator
also establishes the vesting schedule of awards that are granted.

2005
United States Equity Incentive Plan

Awards. The
2005 U.S. Plan provides for the following kinds of awards, which we           refer to
generically as awards: (i) Incentive Stock Options (ISOs), (ii)           Non-statutory
Stock Options (NSOs), (iii) Restricted Stock, (iv) Restricted           Stock Units
(RSUs), (v) Performance Shares, (vi) Performance Units, and (vii)           Deferred
Stock Units. All of these awards can vest based on time or performance
          milestones.

Granting
of options, price and duration.Our 2005 U.S. Plan provides that each option
will expire on the date stated in the notice of grant, which will not be more than seven
years from its date of grant (or five years, in the case of an ISO granted to a person who
on the date of grant owns 10% or more of our voting power). The exercise price of an
option cannot be less than 100% of the fair market value per share on the date of grant
(or 110% of the fair market value, in the case of an ISO granted to a person who on the
date of grant owns 10% or more of our voting power). The administrator will fix the period
within which the award can be exercised and the exercise price. No award can vest until at
least six months after the grant date.

Granting
of awards other than options, and price. The administrator can determine the
conditions that must be satisfied, which typically will be based principally or solely on
the recipients continuing to provide services to us, but may also include a
performance-based component. We can issue ordinary shares under grants of Restricted
Stock, RSUs, Performance Shares and Performance Units upon payment of their nominal value.
No award can vest until at least one year after the grant date. Deferred Stock Units
consist of Restricted Stock, RSUs, Performance Shares or Performance Units that the
administrator permits to be paid out in installments or on a deferred basis.

Grants
to non-employee directors.Our non-employee directors will receive an automatic
option grant under the 2005 U.S. Plan or the 2005 Israel Plan (but not both), and will
also be eligible for discretionary awards under the plans. We currently contemplate that
automatic grants under the 2005 U.S. Plan will be made primarily to non-employee directors
who are citizens or residents of the United States, and automatic grants under the 2005
Israel Plan will be made primarily to non-employee directors who are citizens or residents
of Israel.

54

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Each
non-employee director who is first elected or appointed to the board of directors will be
granted an option to purchase 50,000 ordinary shares on the date of the initial election
or appointment, vesting in equal annual installments over a four-year period. On the date
of each annual general meeting of shareholders, each non-employee director who is to
continue to serve as a non-employee director after the annual meeting will be granted an
option to purchase an additional 25,000 ordinary shares, of which 50% will vest six months
after the grant date, 25% will vest nine months after the grant date and another 25% will
vest a year after the grant date, provided that the director has served as a non-employee
director for at least six months prior to the date of the annual meeting. The directors in
office immediately prior to the date of initial appointment or election, or of the annual
meeting, as applicable, may determine to reduce the initial or annual grant to all
non-employee directors or specific non-employee directors.

All
options to directors will be granted at an exercise price equal to 100% of the closing
price of the ordinary shares on the NASDAQ National Market on the date of grant.

2005
Israel Equity Incentive Plan

Awards. The
2005 Israel Plan provides for the following kinds of awards, which we           refer to
generically as awards: (i) Approved 102 Options/Shares,          which are
grants to employees and officers that are eligible for favorable tax           treatment
in Israel and which must be held by a trustee for a minimum period,           (ii) Non-approved
102 Options/Shares, which are grants of options or           shares that are not
eligible for favorable tax treatment in Israel and which may           be held directly
by the participants, (iii) Restricted Stock, (iv) RSUs, (v)           Performance Shares,
(vi) Performance Units, and (vii) Deferred Stock Units. All           of these awards can
vest based on time or performance milestones.

Trustee. A
trustee designated by our board of directors and approved by the Israel           Tax
Authority must hold any shares allocated or issued upon exercise of Approved
          102 Options or other shares subsequently received following any realization of
          rights, including bonus shares (stock dividends), for at least the period of
          time specified by Section 102 of Israels Income Tax Ordinance.

Granting
of options, price and duration.Our 2005 Israel Plan provides that each option
will expire on the date stated in the option agreement, which will not be more than ten
years from its date of grant. The exercise price of an option cannot be less than 100% of
the fair market value per share on the date of grant. The administrator will fix the
period within which the award can be exercised and the exercise price. No award can vest
until at least six months after the grant date.

Granting
of awards other than options, and price.The administrator can determine the
conditions that must be satisfied, which typically will be based principally or solely on
the recipients continuing to provide services to us, but may also include a
performance-based component. We can issue ordinary shares under grants of Restricted
Stock, RSUs, Performance Shares and Performance Units upon payment of their nominal value.
No award can vest until at least one year after the grant date. Deferred Stock Units
consist of Restricted Stock, RSUs, Performance Shares or Performance Units that the
administrator permits to be paid out in installments or on a deferred basis.

Grants
to non-employee directors.Our non-employee directors who do not receive an
automatic option grant under the 2005 U.S. Plan will receive an automatic option grant
under the 2005 Israel Plan, and will also be eligible for discretionary awards under the
2005 Israel Plan. We currently contemplate that automatic grants under the 2005 Israel
Plan will be made primarily to non-employee directors who are citizens or residents of
Israel. The terms of grants to non-employee directors under the 2005 Israel Plan will be
identical to those applicable under the 2005 U.S. Plan, described above.

55

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1996
United States Stock Option Plan and 1996 Israel Stock Option Plan

As
of December 31, 2005 we had outstanding options to acquire an aggregate of 28,267,886
ordinary shares under our 1996 United States Stock Option Plan and 1996 Israel Stock
Option Plan combined. The option exercise prices range between $4.46 and $86.54 per share.
We will not issue any more stock options under our 1996 United States Stock Option Plan
and 1996 Israel Stock Option Plan.

Zone
Labs 1998 Stock Option Plan

In
connection with our acquisition of Zone Labs in March 2004, we assumed all of the
outstanding Zone Labs stock options under the Zone Labs 1998 Stock Option Plan, which were
converted into options to purchase approximately 2.8 million of our ordinary shares. As of
December 31, 2005 419,663 ordinary shares had been issued under the Zone Labs 1998 Stock
Option Plan, and options to purchase 365,215 ordinary shares were outstanding on that
date. The stock options generally have terms of between five and ten years and generally
vest over a four-year period. The option exercise prices range between $1.66 and $6.08 per
share. No further stock options can be granted under the Zone Labs 1998 Stock Option Plan.

Employee
Stock Purchase Plan

In
1996 we adopted an Employee Stock Purchase Plan, which we refer to as the ESPP. The ESPP
permits our full-time employees (and full-time employees of some of our subsidiaries) to
purchase ordinary shares through payroll deductions. 6,000,000 ordinary shares were
authorized for issuance under the ESPP. As of February 1, 2006, 1,919,190 ordinary shares
had been issued under the ESPP. The ESPP has six-month offering periods, with purchases
occurring in January and July. The compensation committee of our board of directors
administers the ESPP. According to our shareholders resolution at our annual meeting
of shareholders, held in September 2005, the ESPP will terminate on the earliest of: (i)
the last business day in January 2016, (ii) when no more shares are available for issuance
under the ESPP, and (iii) when all purchase rights under the ESPP are granted or exercised
in connection with a Corporate Transaction as defined in the ESPP.

An
eligible employee can purchase ordinary shares at a price of 85% of the fair market value
of the ordinary shares at the beginning of the six-month offering period (or 85% of the
fair market value of the ordinary shares on the semi-annual purchase date, if that is
lower). Each eligible employee can elect to purchase ordinary shares under the ESPP in an
amount of up to 15% of the employees compensation, but not more than 1,250 shares
per participant on any purchase date. Employees may terminate their participation in the
ESPP at any time during the offering period, and participation ends automatically on
termination of employment with us. Each outstanding purchase right will be exercised
immediately prior to our merger or consolidation with another company. Our board of
directors may amend or terminate the ESPP immediately after the close of any purchase
date. The board may not, unless shareholders approve, materially increase the number of
ordinary shares available for issuance, reduce the purchase price payable for ordinary
shares, or materially modify the eligibility requirements for participation or the
benefits available to participants.

Change
of control arrangements

Upon
a change of control of us, if the successor entity refuses to assume or provide substitute
awards, then the compensation committee of our board of directors can either terminate all
unvested awards or accelerate the vesting period of any award under our 2005 U.S. Plan and
our 2005 Israel Plan. The compensation committee also has the authority to accelerate the
vesting of the ordinary shares subject to outstanding options held by our directors,
officers and employees in connection with the subsequent termination of some
officers employment following a change in control event.

56

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

The
following table shows information as of December 31, 2003, 2004 and 2005 for each person
who, as far as we know, beneficially owned more than 5% of our outstanding ordinary
shares:

|Name of Five Percent Shareholders | No. of sharesbeneficiallyheld | % of class ofshares (3) | No. ofsharesbeneficiallyheld | % of class ofshares (3) | No. of sharesbeneficiallyheld | % of class ofshares (3)
|--------------------------------- | ----------------------------- | ----------------------- | ---------------------------- | ----------------------- | ----------------------------- | -----------------------
|
|
|
|
|Gil Shwed                         |                               |                         |                              | 29,751,494              | (1)                           |                        
|                                  |                               |                         |                              |                         |                               |                        
|Franklin Resources, Inc.          |                               |                         |                              | 27,306,935              | (2)                           |                        
|                                  |                               |                         |                              |                         |                               |                        
|Marius Nacht (4)                  |                               |                         |                              | 27,311,794              | (1)                           |                        
|                                  |                               |                         |                              |                         |                               |                        
|Janus Capital Management LLC (5)  |                               |                         |                              | 17,335,164              | (2)                           |                        
|Shlomo Kramer (5)                 |                               |                         |                              | 13,746,900              | (1)                           |                        

---

|(1) | The
amount includes ordinary shares owned by each of the individuals, directly
               or indirectly, and options immediately exercisable or that are exercisable
               within 60 days from December 31, of each of the years shown in this table.
The                exercise price of some of these options is greater than our current
share market                price.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As
of December 31, 2003 and 2004, based on information contained in Schedules
               13F filed with the Securities and Exchange Commission; as of December 31,
2005,                based on information contained in a Schedule 13G filed with the
Securities and                Exchange Commission. In the Schedule 13G filed on February
14, 2006, Franklin                Resources, Inc., Charles B. Johnson, Rupert H. Johnson
and Templeton Global                Advisors Limited indicate that they may be deemed to
be the beneficial owners of                some or all of these securities but they
disclaim any pecuniary interest in any                of the securities. The address for
Franklin Resources, Inc. is One Franklin                Parkway, San Mateo, California
94403.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | If
a shareholder has the right to acquire shares by exercising stock options
               exercisable within 60 days from December 31, of each of the years shown in
this                table, these shares are deemed outstanding for the purpose of
computing the                percentage owned by the specific shareholder (that is, they
are included in both                the numerator and the denominator) but they are
disregarded for the purpose of                computing the percentage owned by any other
shareholder.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In
addition to the position stated in the table for December 31, 2005, Mr. Nacht
               is the beneficiary of a trust that as of May 2005, the date on which the
trust                was established by Mr. Nacht, held 1,000,000 ordinary shares. Mr.
Nacht does not                control the trust and has limited access to information
concerning activities                and holdings of the trust. The trust is irrevocable
and is scheduled to expire                May 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based
on information available to us, as of December 31, 2004 and December 31,
               2005, neither Janus Capital Management LLC nor Shlomo Kramer beneficially
owned                more than 5% of our outstanding ordinary shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
major shareholders do not have different voting rights from other shareholders with
respect to our ordinary shares.

As
of August 2005, approximately 46% of the total number of our ordinary shares were held of
record or beneficially owned by persons in the United States.  According to our
transfer agent, there were 283 holders of record of our ordinary shares in the United
States.

We
are not controlled by another corporation or by any foreign government, directly or
through any other entity. Each of our outstanding ordinary shares has identical rights in
all respects.

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

# Consolidated financial
statements

You
can find our financial statements in Item 18  Financial Statements.
Dividend policy

Out
of our retained earnings of $1,781 million as of December 31, 2005, approximately $661
million are tax-exempt because they are attributable to our facilities status as
Approved Enterprise under the Investment Law. Our board of directors has resolved not to
distribute any dividend from our undistributed tax-exempt income. The undistributed
tax-exempt income is essentially permanent in duration.

# Legal proceedings

Beginning
on August 29, 2003, we received a number of class action complaints filed in the United
States District Court for the Southern District of New York by holders of our ordinary
shares, alleging violations of the United States federal securities laws. On January 14,
2004, the court-appointed lead plaintiffs filed a Consolidated Amended Complaint on behalf
of a putative class of all purchasers of ordinary shares between July 10, 2001 and April
4, 2002. The complaint generally alleges that we and certain of our senior officers made
misrepresentations and omissions regarding, among other things, our sales and future
prospects. We retained counsel and filed a motion to dismiss the complaint. On March 7,
2005 the District Court granted our motion to dismiss but permitted the lead plaintiffs to
file an amended complaint to attempt to cure the defects in the dismissed complaint. On
April 22, 2005, the lead plaintiffs filed their Consolidated Second Amended Complaint. On
September 2, 2005, we filed a motion to dismiss this complaint, and this motion is
currently pending before the District Court. We continue to dispute the allegations of
wrongdoing and intend to defend the matter vigorously. We maintain applicable insurance as
well as a financial reserve in our financial statements as of December 31, 2005.

On
November 16, 2004, Etay Bogner, a shareholder of SofaWare, filed a motion in the Tel-Aviv
District Court asking that the court authorize him to conduct a shareholders derivative
suit against us on behalf of SofaWare in the amount of approximately NIS 22.7 million
($5.1 million as of the date of the filing), not including linkage and interest. The suit
relates to discounts, sales commissions and royalties that the plaintiff alleges we owe to
SofaWare, with respect to products that we sold or that were sold through us. Court
hearings have taken place with respect to the plaintiffs request that the court
authorize him to conduct a shareholders derivative suit against us on behalf of
SofaWare. The parties submitted written summations and are waiting for the courts
decision on this request. The matter is at a very preliminary stage, but we believe that
the claim is without merit and intend to contest the claim vigorously.

On
November 22, 2005, Etay Bogner also filed an initiating motion against us and against
SofaWare. The motion alleges that some shareholders of SofaWare, among them the plaintiff,
are entitled to exercise veto rights with respect to various actions of SofaWare. The
plaintiff also filed a motion to obtain injunctive relief that would prevent SofaWare and
us from taking certain actions with respect to the issuance of SofaWares securities
to its employees and the determination of SofaWares auditors compensation. We
have submitted a motion to dismiss the initiating motion, to convert it to a regular claim
or to stay the proceedings as long as Bogners first suit is pending. We have
responded to the motion to obtain injunctive relief. The matter is at a very preliminary
stage, but we believe that the claim is without merit and intend to contest the claim
vigorously.

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On
December 14, 2004, Adi Ruppin, a shareholder and director of SofaWare, filed an initiating
motion in the Tel-Aviv District Court against us. The motion alleges that we are
oppressing the plaintiff, who is a minority shareholder of SofaWare. Therefore, the
plaintiff is asking the court to compel us to purchase the plaintiffs shares in
SofaWare, based upon a valuation to be determined by an independent expert. The plaintiff
is also seeking disclosure of information and documents relating to our business plans and
those of SofaWare, and to the inter-company balances between the two companies. We have
submitted a motion to dismiss the initiating motion or to convert it to a regular claim,
and a motion to stay the proceedings as long as Bogners first suit is pending. As
also requested by the plaintiff, the court has stayed all proceedings in this case until
after the court renders its decision with respect to Bogners request that he be
authorized to conduct a shareholders derivative suit against us on behalf of
SofaWare. The matter is at a very preliminary stage, but we believe that the claim is
without merit and intend to contest the claim vigorously.

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

Our
ordinary shares are traded publicly on the NASDAQ National Market under the symbol
CHKP.

The
following table lists the high and low prices of the ordinary shares for the periods
indicated:

|                       | High | Low
|---------------------- | ---- | ---
|
|
|
|
|2001                   |      |    
|2002                   |      |    
|2003                   |      |    
|2004                   |      |    
|2005                   |      |    
|                       |      |    
|2004                   |      |    
|First quarter          |      |    
|Second quarter         |      |    
|Third quarter          |      |    
|Fourth quarter         |      |    
|                       |      |    
|2005                   |      |    
|First quarter          |      |    
|Second quarter         |      |    
|Third quarter          |      |    
|Fourth quarter         |      |    
|                       |      |    
|Most recent six months |      |    
|September 2005         |      |    
|October 2005           |      |    
|November 2005          |      |    
|December 2005          |      |    
|January 2006           |      |    
|February 2006          |      |    

On
March 10, 2006, the last reported sale price of our ordinary shares on the NASDAQ National
Market was $21.12 per share.

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

We
were incorporated in Israel in July 1993, and we are registered with the Israeli Registrar
of Companies as public company number 52-004282-1.

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The
objectives and purposes stated in our articles of association are to engage in any lawful
activity worldwide. We develop, market and support a wide range of software and combined
hardware and software products and services for enterprises, service providers, small- and
medium-sized businesses and consumers. Our products and services operate under a unified
security architecture, with central management and enforcement of security policy, and
protect our customers networks in four areas: perimeter, internal, Web and endpoint.

# Articles of association
and Israeli Companies Law

The
following is a summary of the material provisions of our articles of association and
related provisions of Israeli corporate law. For the complete text of our articles of
association, see Item 19  Exhibits.

Description
of shares

Our
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. On December 31, 2005 we had 244,309,929 ordinary shares outstanding and on January
1, 2005 we had 248,217,798 ordinary shares outstanding. During 2005 we issued 6,706,000
ordinary shares, all pursuant to employee equity incentive plans. On December 31, 2005 we
held 16,914,041 ordinary shares in our treasury. No preferred shares are outstanding. We
have 1 deferred share issued and outstanding, which is not entitled to any rights other
than the right to receive its nominal value upon our liquidation.

Description
of ordinary shares

All
of the issued and outstanding ordinary shares are validly issued, fully paid and
non-assessable. The ordinary shares do not have pre-emptive rights. Our memorandum of
association, our articles of association and Israeli law do not restrict in any way the
ownership or voting of our ordinary shares by non-residents of Israel, except with respect
to citizens of countries that are in a state of war with Israel.

Dividend
and liquidation rights. The holders of our ordinary shares will be entitled to their
proportionate share of any cash dividend, share dividend or dividend in kind distributed
with respect to our ordinary shares. This right may be changed if shares with special
dividend rights are authorized in the future. Under the Israeli Companies Law, we may
declare dividends out of the higher of retained earnings and earnings generated over the
two most recent years (the profits test), in either case provided that our board of
directors reasonably believes that the dividend will not render us unable to meet our
current or foreseeable obligations when due (the solvency test). If we do not comply with
the profits test, a court may allow us to distribute a dividend as long as the court is
convinced that the solvency test is fulfilled.

Our
articles of association provide that the board of directors may declare and distribute
interim dividends without the approval of the shareholders. Shareholder approval is
required for the payment of a final dividend proposed by the board of directors, but
shareholders cannot approve a final dividend that is greater than the boards
proposal; in addition, once an interim dividend has been declared and paid, it cannot be
affected by any subsequent resolution of the shareholders or the shareholders
failure to approve a final dividend.

In
the event of our liquidation, holders of our ordinary shares have the equal right to
participate in the distribution of assets remaining after payment of liabilities. This
right may be changed if shares with special liquidation or dividend rights are authorized
in the future.

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. This right
may be changed if shares with special voting rights are authorized in the future.

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Under
the Israeli Companies Law, we must hold an annual meeting of our shareholders once every
calendar year and not more than 15 months from the date of the previous annual
shareholders meeting. The board of directors determines the location of the meeting, which
can be in Israel or elsewhere. In addition, our board of directors may, in its discretion,
convene additional meetings as special shareholders meetings. The board of
directors is also required to convene a special shareholders meeting upon the demand of
any of the following: two directors; one quarter of the directors in office; or the holder
or holders of 5% of our outstanding share capital. Our articles of association provide
that each shareholder of record is entitled to receive prior notice of any shareholders
meeting in accordance with the requirements of the Israeli Companies Law. The law
currently provides for at least 21 days notice.

The
quorum required for a meeting of shareholders consists of at least two shareholders
present in person or by proxy and holding more than 50% of the voting power. The chairman
of the board of directors presides at each of our shareholders meetings. The chairman of
the meeting does not have an additional or casting vote. A meeting adjourned for lack of a
quorum will be adjourned to the same day in the following week, at the same time and
place, or to the day, time and place that the chairman determines with the consent of the
holders of a majority of the shares present in person or by proxy and voting on the
question of adjournment. At the reconvened meeting, the required quorum consists of any
two shareholders, regardless of the number of shares they hold or represent.

The
Israeli Companies Law requires that shareholders approve certain transactions, actions and
arrangements. Such transactions, actions and arrangements include:

| | n | arrangements
with a director as to the terms of office or compensation,
| | - | -----------------------------------------------------------------------

| | n | certain
extraordinary transactions (as defined in the Israeli Companies Law), and
| | - | ---------------------------------------------------------------------------------

| | n | 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

You
can see more details in this Item 10, under the caption Approval of certain
transactions; obligations of directors, officers and shareholders.

Shareholders
resolutions will be deemed adopted if approved by the holders of a majority of the voting
power voting at a shareholders meeting, except for the following decisions which
require a different majority:

| | (1) | A
special or extraordinary resolution (such as a resolution amending our
               memorandum of association or articles of association)  a majority of
at                least 75% of the shares voting on the matter is needed.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | A
voluntary liquidation  a majority of at least 75% of the shares voting
               on the matter is needed.
| | --- | -----------------------------------------------------------------------------------------------------------------

| | (3) | A
compromise or arrangement between us and our creditors or shareholders,
               reorganization, stock split or reverse split  have to be approved by
a                majority in number of the persons participating in the vote (except for
those                abstaining) who together hold at least 75% of the value represented
at the vote.                In addition, court approval is needed.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The
nomination and dismissal of outside directors  outside directors may
               be elected or removed by a majority vote at a shareholders meeting, as
long as                either:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the
majority of shares includes at least one-third of the shares of non-controlling
shareholders voted                       at the meeting, or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

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| | n | the
total number of shares of non-controlling shareholders voted against the proposal does
not exceed 1% of our aggregate voting rights.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Extraordinary
transactions with a controlling shareholder (any shareholder that                has the
ability to direct our actions, including any shareholder who holds 25%                or
more of our voting rights if no other shareholder owns more than 50% of our
               voting rights)  following audit committee and board of directors
approval,                these transactions must be approved by a majority vote at a
shareholders                meeting, as long as either:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the
majority of shares includes at least two-thirds of the shares of the voting shareholders
who have no personal interest in the transaction, or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the
total shareholdings of those who have no personal interest in the transaction and who
vote against the transaction does not exceed 1% of our aggregate voting rights.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 prior notice of shareholders meetings. The law currently
provides for at least 21 days notice. For purposes of determining the shareholders
entitled to notice and to vote at such meeting, the board of directors may fix a record
date, which shall be between 4 and 40 days prior to the date of the meeting.

Election
of directors. Our ordinary shares do not have cumulative voting rights in the election
of directors. Therefore, the holders of shares representing more than 50% of the voting
rights at the shareholders meeting, voting in person or by proxy, have the power to elect
any or all of the directors whose positions are being filled at that meeting, subject to
the special approval requirements for outside directors described above.

Transfer
agent and registrar. The transfer agent and registrar for our ordinary shares is
American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, NY
10038 U.S.A., tel: 718-921-8124.

Description
of preferred shares

We
have 5,000,000 preferred shares authorized. Our 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 the preferred 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 us without further action by the shareholders. For example, the board of
directors could issue preferred shares with voting and conversion rights that may
adversely affect the voting power of the holders of ordinary shares, including the loss of
voting control to others. We currently have no plans to issue any preferred shares.

Anti-takeover
measures

Some
of the provisions of our articles of association and Israeli law could, together or
separately:

| | n | discourage
potential acquisition proposals,
| | - | -------------------------------------------

| | n | delay
or prevent a change in control, and
| | - | -----------------------------------------

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| | n | limit
the price that investors might be willing to pay in the future for our ordinary shares.
| | - | ---------------------------------------------------------------------------------------------

Israeli
corporate law regulates acquisitions of shares through tender offers and mergers, requires
special approvals for transactions involving directors, officers or significant
shareholders, and regulates other matters that may be relevant to these types of
transactions.

Under
the Israeli Companies Law, in the case of a merger the shareholders and board of directors
of each of the merging companies generally need to approve the merger. Shares held by in
one of the merging companies by the other merging company (or certain of its affiliates)
are not counted toward the required approval. If a merging company has different classes
of shares, the approval of each class may be required. Under our articles of association,
a merger requires the approval of a supermajority of at least 75% of our shares that are
voted on the merger. A merger cannot be completed until 30 days have passed after
shareholder approval of each of the merging companies, all approvals have been submitted
to the Israeli Registrar of Companies and 50 days have passed from the time that a
proposal for approval of the merger is filed with the Registrar of Companies. In addition,
a creditor can seek to block a merger on the ground that the surviving company will not be
able to meet its obligations.

The
Israeli Companies Law also provides that an acquisition of shares in a public company such
as our 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 (unless there is another 25%
shareholder of the company, or the shares are acquired from another 25% shareholder).
Similarly, the Israeli Companies Law provides that an acquisition of shares in a public
company such as our company must be made by means of a tender offer, if as a result of the
acquisition the purchaser would hold more than 45% of the shares of the company (unless
there is another holder of more than 45% of the shares of the company, or the shares are
acquired from another holder of more than 45% of the shares of the company). These rules
do not apply if the acquisition takes the form 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 or the rules and
regulations of the stock exchange on which the shares are traded:

| | n | there
is a limitation on acquisition of any level of control of the company, or
| | - | -------------------------------------------------------------------------------

| | n | the
acquisition of any level of control requires the purchaser to make 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.

In
addition, our articles of association contain certain provisions that may make it more
difficult to acquire us, such as the ability of our board of directors to issue preferred
shares, as described above under the caption Description of preferred shares.

Our
articles of association provide that we may not engage in any business combination with an
interested shareholder for a period of three years after the date that the shareholder
became an interested shareholder, unless:

| | n | prior
to that date, the board of directors approved either the business combination or the
transaction that resulted in the shareholders becoming an interested shareholder,
or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | n | upon
consummation of the transaction that resulted in the shareholders becoming an
interested shareholder, the interested shareholder owned at least 75% of our voting
shares outstanding at the time the transaction commenced.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A business combination includes:

| | n | any
merger or consolidation between the interested shareholder and us,
| | - | ----------------------------------------------------------------------

| | n | any
sale, transfer, pledge or other disposition of 10% or more of our assets in a transaction
involving               the interested shareholder,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | n | subject
to certain exceptions, any transaction that results in our issuance or transfer of any of
our               shares to the interested shareholder,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | any
transaction in which we are involved that has an effect of increasing the proportionate
share of our               shares, of any class or series, beneficially owned by the
interested shareholder, or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the
receipt by the interested shareholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through us.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

In
general, the articles of association define an interested shareholder as any entity or
person that beneficially owns 15% or more of our outstanding voting shares and any entity
or person affiliated with, controlling or controlled by such entity or person.

In
addition, our shareholders are not able to cumulate votes at a meeting, which may require
the acquiror to hold more shares to gain representation on the board of directors than if
cumulative voting were permitted. Moreover, our board of directors is authorized to issue
preferred shares in series, with the terms of each series to be fixed by the board of
directors.

Approval
of certain transactions; obligations of directors, officers and shareholders

Officers
and directors. The Israeli Companies Law codifies the fiduciary duties that office
holders, which under the law includes our directors and executive officers, owe to a
company.

Fiduciary
duties. An office holders fiduciary duties consist of a duty of loyalty and a
duty of care. The duty of loyalty requires an office holder to act in good faith and for
the benefit of the company, including to avoid any conflict of interest between the office
holders position in the company and personal affairs, and proscribes any competition
with the company or the exploitation of any business opportunity of the company in order
to receive personal advantage for himself or herself or for others. This duty also
requires an office holder to reveal to the company any information or documents relating
to the companys affairs that the office holder has received due to his or her
position as an office holder. A company may approve any of the acts mentioned above
provided that all the following conditions apply: the office holder acted in good faith,
neither the act nor the approval of the act prejudices the good of the company, and the
office holder disclosed the essence of his or her personal interest in the act, including
any substantial fact or document, a reasonable time before the date for discussion of the
approval. The duty of care requires an office holder to act with a level of care that a
reasonable office holder in the same position would employ under the same circumstances.
This includes the duty to use reasonable means to obtain information regarding the
advisability of a given action submitted for his or her approval or performed by virtue of
his or her position and all other relevant information material to these actions.

Compensation. Under
the Israeli Companies Law, the compensation arrangements for officers who           are
not directors require the approval of the board of directors, unless the
          articles of association provide otherwise. Arrangements regarding the
          compensation of directors require the approval of the audit committee, the
board           and the shareholders, in that order.

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Disclosure
of personal interest. The Israeli Companies Law requires that an office holder
promptly disclose to the company any personal interest that he or she may have and all
related material information or documents known to him or her, in connection with any
existing or proposed transaction by the company. Personal interest, as defined
by the Companies Law, includes a personal interest of any person in an act or transaction
of the company, including a personal interest of his relative or of a corporation in which
that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or
more of the voting rights, a director or general manager, or in which he or she has the
right to appoint at least one director or the general manager; personal
interest does not apply to a personal interest stemming merely from holding shares
in the company.

The
office holder must make the disclosure of his or her personal interest no later than the
first meeting of the companys board of directors that discusses the particular
transaction. This duty does not apply to the personal interest of a relative of the office
holder in a transaction unless it is an extraordinary transaction. The Israeli
Companies Law defines an extraordinary transaction as a transaction that is
not in the ordinary course of business of a company, that is not on market terms or that
is likely to have a material impact on the companys profitability, assets or
liabilities, and a relative as a spouse, sibling, parent, grandparent,
descendent, spouses descendant and the spouse of any of the foregoing.

Approvals.           The
Companies Law provides that a transaction with an office holder or a
          transaction in which an office holder has a personal interest requires board
          approval, unless the transaction is an extraordinary transaction or the
articles           of association provide otherwise. The transaction may not be approved
if it is           adverse to the companys interest. If the transaction is an
extraordinary           transaction, or if it concerns exculpation, indemnification or
insurance of an           office holder, then the approval of the companys audit
committee and the           board of directors is required. Exculpation, indemnification,
insurance or           compensation of a director also requires shareholder approval. A
director who           has a personal interest in a matter that is considered at a
meeting of the board           of directors or the audit committee may not attend that
meeting or vote on that           matter, unless a majority of the board of directors or
the audit committee also           has a personal interest in the matter. If a majority
of the board of directors           has a personal interest in the transaction,
shareholder approval also would be           required.

Shareholders.           The
Israeli Companies Law imposes the same disclosure requirements described           above
on a controlling shareholder of a public company that it imposes on an           office
holder. For this purpose, a controlling shareholder is any
          shareholder who has the ability to direct the companys actions, including
          any shareholder holding 25% or more of the voting rights if no other
shareholder           owns more than 50% of the voting rights in the company. Two or more
shareholders           with a personal interest in the approval of the same transaction
are deemed to           be one shareholder.

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 or her power in the company,
including, among other things, voting in the general meeting of shareholders on the
following matters:

| | n | any
amendment to the articles of association,
| | - | ---------------------------------------------

| | n | an
increase of the company's authorized share capital,
| | - | ------------------------------------------------------

| | n | a
merger, or
| | - | ------------

| | n | 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. A recent amendment to the Israeli Companies Law
provides that a breach of the duty of fairness will be governed by the laws governing
breach of contract. The Israeli Companies Law does not describe the substance of this
duty.

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Indemnification
of directors and officers; limitations on liability

Our
articles of association allow us to indemnify, exculpate and insure our office holders to
the fullest extent permitted under the Israeli Companies Law, provided that procuring this
insurance or providing this indemnification or exculpation is approved by the audit
committee and the board of directors, as well as by the shareholders if the office holder
is a director.

Under
the Israeli Companies Law, a company may indemnify an office holder against any monetary
liability incurred in his or her capacity as an office holder whether imposed on him or
her or incurred by him or her in favor of another person pursuant to a judgment, a
settlement or an arbitrators award approved by court. A company also can indemnify
an office holder against reasonable litigation expenses including attorneys fees,
incurred, whether or not paid by him or her in his or her capacity as an office holder, in
proceedings instituted against him or her by the company, on its behalf or by a
third-party, in connection with criminal proceedings in which the office holder was
acquitted, or as a result of a conviction for a crime that does not require proof of
criminal intent, or in which an indictment was not brought against the office holder.

In
addition, a company may indemnify an office holder against reasonable legal fees,
including attorneys fees, incurred, whether or not paid by him, by him or her in
consequence of an investigation or proceeding instituted against him or her by an
authority that is authorized to conduct such investigation or proceeding, and that was
resolved without an indictment against him or her and without imposing on him or her
financial obligation as an alternative of a criminal proceeding, or that was resolved
without filing an indictment against him or her but with the imposition on him or her of a
financial obligation as an alternative to a criminal proceeding in respect of an offense
that does not require the proof of criminal intent.

A
company may indemnify an office holder in respect of these liabilities either in advance
of an event or following an event. If a company undertakes to indemnify an office holder
in advance of an event, the indemnification, other than litigation expenses, must be
limited to foreseeable events in light of the companys actual activities when the
company undertook such indemnification, and reasonable amounts or standards, as determined
by the board of directors.

A
company may obtain insurance for an office holder against liabilities incurred in his or
her capacity as an office holder. These liabilities include a breach of duty of care to
the company or a third-party, including a breach arising out of negligent conduct of the
office holder, a breach of duty of loyalty and any monetary liability imposed on the
office holder in favor of a third-party. A company may also exculpate an office holder
from a breach of duty of care in advance of that breach. Our articles of association
provide for exculpation both in advance or retroactively, to the extent permitted under
Israeli law. A company may not exculpate an office holder from a breach of duty of loyalty
towards the company or from a breach of duty of care concerning dividend distribution or a
purchase of the companys shares by the company or other entities controlled by the
company.

Under
the Israeli Companies Law, a company may indemnify or insure an office holder against a
breach of duty of loyalty only to the extent that the office holder acted in good faith
and had reasonable grounds to assume that the action would not prejudice the company. In
addition, a company may not indemnify, insure or exculpate an office holder against a
breach of duty of care if committed intentionally or recklessly (excluding mere
negligence), or committed with the intent to derive an unlawful personal gain, or for a
fine or forfeit levied against the office holder in connection with a criminal offense.

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Our
audit committee, board of directors and shareholders have resolved to indemnify our
directors and officers to the extent permitted by law and by our articles of association
for liabilities not covered by insurance, that are of certain enumerated types of events,
and subject to limitations as to amount.

Borrowing
power: amendment of rights of ordinary shares

Our
articles of association grant broad powers to the board of directors to have us borrow,
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
the past, in accordance with Rule 4350(a)(1) of the Rules of Corporate Governance of the
NASDAQ National Market, we received an exemption from the requirement to distribute an
annual report to our shareholders prior to our annual general meeting of shareholders. In
2005, in response to changes to the Israeli Companies Law, we amended our articles of
association to permit the electronic distribution of our financial statements to our
shareholders. Accordingly, we will post our Annual Report on Form 20-F on our Web site
(www.checkpoint.com), rather than mail it to shareholders as required by the NASDAQ
rules. This will comply with the legal requirements in Israel.

NASDAQ
Rule 4350(f) requires that an issuer listed on the NASDAQ National Market should have a
quorum requirement that in no case be less than 33 1/3% of the outstanding shares of the
companys common voting stock. However, our articles of association, consistent with
the Israeli Companies Law, provide that the quorum requirements for an adjourned meeting
are the presence of a minimum of two shareholders present in person. Our quorum
requirements for an adjourned meeting do not comply with the requirements of Rule 4350(f)
and we instead follow our home country practice.

# Material Contracts

In
October 2005, we announced the execution of a definitive agreement to acquire Sourcefire.
For a summary of the terms of our agreement to acquire Sourcefire, please see Item 5
 Operating and Financial Review and Prospects, under the caption
Overview. This summary is qualified in its entirety by the text of the
Agreement and Plan of Merger by and among Check Point Software Technologies Ltd., Check
Point Software Technologies, Inc., Seyfert Acquisition Corporation, and Sourcefire, Inc.,
dated as of October 5, 2005, which is filed as Exhibit 4.11 to this Form 20-F.

# Israeli taxation,
foreign exchange regulation and investment programs

The
following is a summary of the principal Israeli tax laws applicable to us, of the Israeli
Government programs from which we benefit, and of Israeli foreign exchange regulations.
This section also contains a discussion of material Israeli tax consequences to our
shareholders who are not residents or citizens of Israel. This summary does not discuss
all aspects of Israeli tax law that may be relevant to a particular investor in light of
his or her personal investment circumstances, or to some types of investors subject to
special treatment under Israeli law. Examples of investors subject to special treatment
under Israeli law include residents of Israel, traders in securities, or persons who own,
directly or indirectly, 10% or more of our outstanding voting capital, all of whom are
subject to special tax regimes not covered in this discussion. Some parts of this
discussion are based on new tax legislation that has not been subject to judicial or
administrative interpretation. The discussion should not be construed as legal or
professional tax advice and does not cover all possible tax consequences.

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You
are urged to consult your own tax advisor as to the Israeli and other tax consequences of
the purchase, ownership and disposition of our ordinary shares, including, in particular,
the effect of any non-Israeli, state or local taxes.

General
corporate tax structure in Israel

Israeli
companies were generally subject to corporate tax at the rate of 34% of their taxable
income in 2005. Pursuant to tax reform legislation that came into effect in 2003, the
corporate tax rate is to undergo further staged reductions to 25% by the year 2010. In
order to implement these reductions, the corporate tax rate is scheduled to decline to 31%
in 2006, 29% in 2007, 27% in 2008, and 26% in 2009.

As
discussed below, however, the rate is effectively reduced for income derived from an
Approved Enterprise.

Law
for the Encouragement of Capital Investments, 1959

Our
facilities in Israel have been granted Approved Enterprise status under the Law for the
Encouragement of Capital Investments, 1959, commonly referred to as the Investment Law.
The Investment Law provides that capital investments in a production facility (or other
eligible assets) may be designated as an Approved Enterprise. Until recently, the
designation required advance approval from the Investment Center of the Israel Ministry of
Industry, Trade and Labor (the Investment Center). Each certificate of approval for an
Approved Enterprise relates to a specific investment program, delineated both by the
financial scope of the investment and by the physical characteristics of the facility or
the asset.

A
company that owns an Approved Enterprise is eligible for governmental grants, but may
elect to receive an alternative package comprised of tax benefits (Alternative Track).
Under the alternative package, a companys undistributed income derived from an
Approved Enterprise is exempt from corporate tax for an initial period (two to ten years,
depending on the geographic location of the Approved Enterprise within Israel). The
exemption begins in the first year that the company realizes taxable income from the
Approved Enterprise.

After
expiration of the initial tax exemption period, the company is eligible for a reduced
corporate tax rate of 10% to 25% for the following five to eight years, depending on the
extent of foreign investment in the company (as shown in the table below). The benefits
period is limited to 12 years from completion of the investment under the approved plan or
14 years from the date of the approval, whichever is earlier. A company in which more than
25% of the shareholders are non-residents of Israel, defined in the Investment Law as a
Foreign Investors Company, may be eligible for benefits for an extended period of up to
ten years.

The
tax benefits derived from any certificate of approval relate only to taxable income
attributable to the specific Approved Enterprise. To the extent we have more than one
approval or only a portion of our capital investments are approved, our effective tax rate
will be the result of a weighted combination of the applicable rates.

|Percent of
Foreign Ownership | Rate of
Reduced Tax | Reduced Tax Period | Tax Exemption Period
|---------------------------- | ------------------- | ------------------ | --------------------
|
|
|
|
|0-25%                        | 25%                 | 5 years            | 2 years             
|25-49%                       | 25%                 | 8 years            | 2 years             
|49-74%                       | 20%                 | 8 years            | 2 years             
|74-90%                       | 15%                 | 8 years            | 2 years             
|90-100%                      | 10%                 | 8 years            | 2 years             

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If
a company distributes dividends from tax-exempt Approved Enterprise income, the company
will be taxed on the otherwise exempt income at the same reduced corporate tax rate that
applies to it after the initial exemption period. Distribution of dividends derived from
Approved Enterprise income that was taxed at reduced rates, but not tax exempt, does not
result in additional tax consequences to the company. Shareholders who receive dividends
derived from Approved Enterprise income are generally taxed at a rate of 15%, which is
withheld and paid by the company paying the dividend, if the dividend is distributed
during the benefits period or within the following 12 years (but the 12-year limitation
does not apply to a Foreign Investors Company).

Currently,
we have six Approved Enterprise programs under the alternative track of the Investment
Law. We have derived, and expect to continue to derive, a substantial portion of our
operating income from our Approved Enterprise facilities. We are therefore eligible for a
tax exemption for a limited period on undistributed Approved Enterprise income, and an
additional subsequent period of reduced corporate tax rates ranging between 10% and 25%,
depending on the level of foreign ownership of our shares. The tax benefits attributable
to our current Approved Enterprises are scheduled to expire in phases by 2013. We intend
to continue to apply for Approved Enterprise programs, but we cannot assure you that we
will do so or that we will be successful. We intend to reinvest the entire amount of our
tax-exempt income and not to distribute this income as a dividend.

The
benefits available to an Approved Enterprise are conditioned upon terms stipulated in the
Investment Law and the related regulations (which include making specified investments in
property and equipment, and financing a percentage of these investments with share
capital), and the criteria set forth in the applicable certificate of approval. If we do
not fulfill these conditions in whole or in part, the benefits can be cancelled and we may
be required to refund the amount of the benefits, linked to the Israeli consumer price
index plus interest. We believe that our Approved Enterprise programs currently operate in
compliance with all applicable conditions and criteria, but we cannot assure you that they
will continue to do so.

On
April 1, 2005, an amendment to the Investment Law came into effect, which revised the
criteria for investments qualified to receive tax benefits. An eligible investment program
under the amendment will qualify for benefits as a Privileged Enterprise (rather than the
previous terminology of Approved Enterprise). Among other things, the amendment provides
tax benefits to both local and foreign investors and simplifies the approval process. The
amendment does not apply to investment programs approved prior to December 31, 2004. The
new tax regime will apply to new investment programs only.

As
a result of the amendment, tax-exempt income generated under the provisions of the new law
will subject us to taxes upon distribution or liquidation and we may be required to record
deferred tax liability with respect to such tax-exempt income. We are currently evaluating
the impact the amendment will have on us. Based on our preliminary analysis, it may
materially adversely affect our 2006 financial statements.

Law
for the Encouragement of Industry (Taxes), 1969

We
believe that we currently qualify as an Industrial Company within the meaning of the Law
for the Encouragement of Industry (Taxes), 1969 (the Industrial Encouragement Law). The
Industrial Encouragement Law defines an Industrial Company as a company that is resident
in Israel and that derives at least 90% of its income in any tax year, other than income
from defense loans, capital gains, interest and dividends, from an enterprise whose major
activity in a given tax year is industrial production.

The
following are the principal corporate tax benefits that are available to Industrial
Companies:

| | n | amortization
of the cost of purchased know-how and patents over an eight-year period for tax purposes,
| | - | ------------------------------------------------------------------------------------------------------

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| | n | accelerated
depreciation rates on equipment and buildings,
| | - | ----------------------------------------------------------

| | n | under
specified conditions, an election to file consolidated tax returns with related Israeli
Industrial               Companies, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | n | expenses
related to a public offering are deductible in equal amounts over three years.
| | - | ---------------------------------------------------------------------------------------

Eligibility
for the benefits under the Industry Encouragement Law is not subject to receipt of prior
approval from any governmental authority. We cannot assure you that we qualify or will
continue to qualify as an Industrial Company or that the benefits described above will be
available in the future.

Special
provisions relating to taxation under inflationary conditions

The
Income Tax Law (Inflationary Adjustments), 1985 represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid inflation.
This law is highly complex. Until December 31, 2001, we measured our Israeli taxable
income in accordance with the provisions of this law. Since January 1, 2002, however, we
have elected to measure our taxable income based on the changes in the exchange rate of
the U.S. dollar rather than on the basis of inflation, and the provisions of this law have
not been applicable to us.

Stamp
tax

Under
Israels Stamp Tax on Documents Law, certain documents are subject to stamp tax. In
2004, the tax authorities began an enforcement campaign involving extensive audits of
companies compliance with the stamp tax obligation with respect to all agreements
which had been signed since June 2003. As part of this campaign, we received from the tax
authorities a request to list all agreements signed since June 2003. We have received
legal advice that there are a variety of defenses relating to our obligation to pay stamp
tax or to the amount to be paid. We believe that the applicable provision in our financial
statements as of December 31, 2005 is adequate to cover probable liabilities for stamp
tax.

Effective
January 1, 2006, stamp tax has been cancelled.

Taxation
of non-Israeli shareholders on receipt of dividends

Under
Israeli tax law, a distribution of dividends from income attributable to an Approved
Enterprise will be subject to tax in Israel at the rate of 15%, which is withheld and paid
by the company paying the dividend, if the dividend is distributed during the benefits
period or within the following 12 years (but the 12-year limitation does not apply to a
Foreign Investors Company). Any distribution of dividends from income that is not
attributable to an Approved Enterprise will be subject to tax in Israel at the rate of
25%, except that dividends distributed on or after January 1, 2006 to an individual who is
deemed a non-substantial shareholder will be subject to tax at the rate of
20%.

Under
the United States-Israel tax treaty, the maximum tax on dividends paid to a holder of the
ordinary shares who is a United States resident is 25%. Dividends received by a United
States company that holds at least 10% of our voting rights will be subject to withholding
tax at the rate of 12.5%, provided certain other conditions in the tax treaty are met (or
at the tax rate of 15% in respect of dividends paid from income attributable to our
Approved Enterprises).

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Capital
gains taxes applicable to non-Israeli shareholders

Capital
gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from
Israeli taxation, provided that the capital gain is not derived from a permanent
establishment in Israel. In addition, the United States-Israel tax treaty exempts United
States residents who hold less than 10% of our voting rights, and who held less than 10%
of our voting rights during the 12 months prior to a sale of their shares, from Israeli
capital gains tax in connection with such sale.

Foreign
exchange regulations

Dividends,
if any, paid to the holders of our ordinary shares, and any amounts payable upon our
dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of
our ordinary shares to an Israeli resident, may be paid in non-Israeli currency. If these
amounts are paid in Israeli currency, they may be converted into freely repatriable U.S.
dollar at the rate of exchange prevailing at the time of conversion. 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 tax considerations

The
following discussion describes the material United States federal income tax
considerations relating to the ownership or disposition of our ordinary shares to a holder
who is:

| | n | a
citizen or resident (as defined for U.S. federal income tax purposes) of the United
States,
| | - | ---------------------------------------------------------------------------------------------

| | n | a
corporation, or other entity taxable as a corporation, created or organized in or under
the laws of               the United States or any of its states,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | an
estate, if the estate's income is subject to United States federal income taxation
regardless of its               source, or
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | n | a
trust, if a U.S. court is able to exercise primary supervision over its administration
and one or more               U.S. persons (e.g., a U.S. citizen, resident or
corporation) have the authority to control all               of its substantial decisions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We refer to any of the above as a
U.S. Shareholder.

This
discussion is based on the provisions of the Internal Revenue Code of 1986, as amended,
referred to as the Code, United States Treasury Regulations promulgated under the Code and
administrative and judicial interpretations of the Code, all as in effect as of the date
of this Annual Report on Form 20-F. This discussion generally considers only U.S.
Shareholders who will hold the ordinary shares as capital assets. The discussion does not
consider:

| | n | aspects
of U.S. federal income taxation relevant to U.S. Shareholders by reason of their
particular          circumstances (including potential application of the alternative
minimum tax),
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | 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,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | U.S.
Shareholders who own 10% or more of our outstanding voting shares, either directly or by
         attribution,
| | - | -------------------------------------------------------------------------------------------------------------------

| | n | U.S.
Shareholders who hold our ordinary shares as part of a hedging, straddle or conversion
transaction,
| | - | --------------------------------------------------------------------------------------------------------

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| | n | U.S.
Shareholders who acquire their ordinary shares in a compensatory transaction,
| | - | ----------------------------------------------------------------------------------

| | n | U.S.
Shareholders whose functional currency is not the U.S. dollar, or
| | - | ----------------------------------------------------------------------

| | n | any
aspect of state, local or non-United States tax law.
| | - | --------------------------------------------------------

The
following summary does not address all of the tax consequences of owning or disposing of
our ordinary shares to you based on your individual tax circumstances. Accordingly, you
should consult your own tax advisor as to the particular tax consequences to you of owning
or disposing of our 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 as defined above will generally be required to include in gross income
the amount of any distributions paid in respect of the ordinary shares to the extent that
the distributions are paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. The amount of the distribution would
include any Israeli taxes withheld as part of the distributions. A maximum U.S. federal
income tax rate of 15% will apply if certain holding period requirements are met. This
rate is applicable in tax years beginning after December 31, 2002 and before January 1,
2009 for qualified dividend income received by an individual as well as
certain trusts and estates. Qualified dividend income generally includes dividends paid by
a U.S. corporation or a qualified foreign corporation. A non-U.S. corporation
such as ours generally will be considered to be a qualified foreign corporation if (i) our
shares are readily tradable on an established securities market in the United States, or
(ii) we are 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
they 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.

Any
distributions in excess of earnings and profits will be treated first as non-taxable
return of capital, reducing a 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 the
ordinary shares. Our dividends will generally not qualify for the dividends received
deduction available to corporations. Any cash distribution paid in Israeli shekel will
equal the U.S. dollar value of the distribution, calculated based on the spot exchange
rate in effect on the date of the distribution.

Credit
for Israeli taxes withheld

Subject
to certain conditions and limitations, a U.S. Shareholder will generally be eligible for a
credit against United States federal income tax liability for any Israeli tax withheld or
paid with respect to dividends on the ordinary shares. The Code provides limitations on
the amount of foreign tax credits. These limitations include 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. A shareholder who does not elect to
claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld
or paid, but only if the shareholder elects to do for all foreign income taxes in that
year. Special rules for determining a U.S. Shareholders foreign tax credit
limitation 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 also apply to any qualified dividend income. The rules relating to
foreign tax credits are complex and each shareholder should consult his, her or its own
tax advisor to determine whether and if the specific shareholder would be entitled to this
credit.

72

---

---



Disposition
of the ordinary shares

The
sale or exchange of ordinary shares will generally result in the recognition of capital
gain or loss. The amount of gain or loss is the difference between the amounts realized on
the sale or exchange and the tax basis in the ordinary shares. If a U.S.
Shareholders holding period for the ordinary shares exceeds one year at the time of
the disposition, the amount of the shareholders gain or loss generally will be
long-term capital gain or loss. Long-term capital gains realized upon a sale or exchange
of ordinary shares generally will be subject to a maximum U.S. federal income tax rate of
15% for taxable years which begin before January 1, 2009. 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 our income, assets and activities, we believe that we are currently not a passive
foreign investment company (PFIC) for U.S. federal income tax purposes. We dont
currently anticipate that we will be a PFIC for any subsequent year. We would be
classified as a PFIC if, for any taxable year, either

| | 1. | 75%
or more of our gross income in the taxable year is passive income, or
| | -- | -------------------------------------------------------------------------

| | 2. | 50%
or more of the average value of our 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 that produce passive income.

If
we were a PFIC for any taxable year during which you held shares as a U.S. Shareholder and
you did not timely elect to treat us as a qualified electing fund under
Section 1295 of the Code or elect to mark the ordinary shares to market, you would be
subject to special tax rules on the receipt of an excess distribution on the
ordinary shares. Generally, a distribution is considered an excess distribution to the
extent it exceeds 125% of the average annual distributions in the prior three years. You
would also be subject to special tax rules on the gain from the disposition of the
ordinary shares.

A
U.S. Shareholder may be able to mitigate certain adverse tax consequences of holding
shares in a PFIC by making a qualified electing fund, deemed sale,
or mark-to-market election. However, as a U.S. Shareholder you may make a
qualified electing fund election only if we agree to furnish certain tax information
annually. We do not presently prepare or provide this information, and this information
may not be available to you if we are subsequently determined to be a PFIC. A number of
specific rules and requirements apply to a U.S. Shareholder under either of the elections
available to owners of a PFIC. You are urged to consult your tax advisor concerning these
elections.

73

---

---



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 beginning in
2011 or later). 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). 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.

# Documents on display

This
report and other information filed or to be filed by us can be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission at:

| | 100
F Street, NE             Public Reference Room             Washington, D.C. 20549
| | -------------------------------------------------------------------------------------

Copies
of these materials can also be obtained from the Public Reference Section of the
Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549, at
prescribed rates.

The
Securities and Exchange Commission maintains a Web site at www.sec.gov that contains
reports, proxy and information statements, and other information regarding registrants
that make electronic filings with the Securities and Exchange Commission using its EDGAR
system.

Additionally,
documents referred to in this Form 20-F may be inspected at our principal executive
offices located at 3A Jabotinsky Street, Ramat-Gan 52520, Israel.

74

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---



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

We
are exposed to market risks that result primarily from weak economic conditions in the
markets in which we sell our products, and from changes in exchange rates or in interest
rates.

In
our investments, we use two kinds of derivative financial instruments: forward exchange
currency contracts and forward rate agreements, as described below. We use these
instruments to hedge our cash flow from unfavorable changes in interest rates, or
exchange rates in transactions not denominated in U.S. dollar.

The
table below provides information regarding our investments in cash, cash equivalents,
deposits and marketable securities as of December 31, 2005.

|                                       |  | Maturity | Total          | Fair
Value at
Dec. 31,
2005
|-------------------------------------- |  | -------- | -------------- | ---------------------------
|
|
|
|
|Government and corporate               |  |          | Amortized cost |                            
|debentures - fixed interest rates      |  |          | WAIR*          |                            
|                                       |  |         
|Structured products***                 |  |          | Amortized cost |                            
|                                       |  |          | WAIR*          |                            
|                                       |  |         
|Mortgage and asset backed              |  |          | Amortized cost |                            
|securities                             |  |          | WAIR*          |                            
|                                       |  |         
|Auction rate securities                |  |          | Cost           |                            
|                                       |  |          | WAIR*          |                            
|                                       |  |         
|Government and corporate               |  |          | Amortized cost |                            
|debentures - floating interest rates** |  |          | WAIR*          |                            
|                                       |  |         
|Money market fund  & cash              |  |          | Book value     |                            
|                                       |  |          | WAIR*          |                            
|                                       |  |          |                |                            
|Total                                  |  |          |                |                            
|                                       |  |          | WAIR*          |                            
|                                       |  |          |                |                            

---

|* | WAIR
 Weighted Average Interest Rate
|- | -------------------------------------

|** | Based
upon LIBOR as of December 31, 2005
|-- | ----------------------------------------

|*** | Composed
mainly of range accrual bonds and inverse floating interest rate bonds (see also Note 3
of the financial statements) which bear interest rate related to the LIBOR. There is no
assurance that this WAIR will be maintained in the future due to the nature of these
instruments
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

75

---

---



# Foreign currency risk

Most
of our sales are denominated in U.S. dollar, and we incur most of our expenses in U.S.
dollar, Euro and Israeli shekel. According to the salient economic factors indicated in
SFAS No. 52, Foreign Currency Translation, our cash flow, sale price, sales
market, expense, financing and intercompany transactions and arrangement indicators are
predominately denominated in U.S. dollar. In addition, U.S. dollar is the primary currency
of the economic environment in which we operate, and thus U.S. dollar is our functional
and reporting currency.

In
our balance sheet, we remeasure into U.S. dollar all monetary accounts (principally cash
and cash equivalents and liabilities) that are maintained in other currencies. For this
remeasurement we use the foreign exchange rate at the balance sheet date. Any gain or loss
that results from this remeasurement is reflected in the statement of income as financial
income or financial expense, as appropriate.

We
measure and record non-monetary accounts in our balance sheet (principally fixed assets,
prepaid expenses and share capital) in U.S. dollar, and we do the same with operational
accounts. For this measurement we use the U.S. dollar value in effect at the date that the
asset or liability was initially recorded in our balance sheet (the date of the
transaction).

Historically,
the effect of fluctuations in currency exchange rates has had low impact on our
consolidated operations. In managing our foreign exchange risk, we enter from time to time
into various foreign exchange hedging contracts. Our policy is to hedge significant net
exposures in the major foreign currencies in which we operate. We periodically assess the
applicability of the U.S. dollar as our functional currency by reviewing the salient
indicators. Neither a 10% increase nor decrease from current exchange rates would have a
material effect on our consolidated financial statements.

We
attempt to limit our exposure resulting from assets and anticipated revenues that are
denominated in Japanese Yen, as well as our anticipated expenses denominated in Euro,
through option and forward contracts. We monitor foreign exchange rates and trends
periodically, to measure the effectiveness of our foreign currency hedging. If our option
and forward contracts meet the definition of a hedge and are so designated, changes in the
fair value of the contracts will be:

| | n | offset
against changes in the fair value of the hedged assets or liabilities through earnings, or
| | - | -------------------------------------------------------------------------------------------------

| | n | recognized
in other comprehensive income until the hedged item is recognized in earnings.
| | - | -----------------------------------------------------------------------------------------

The ineffective portion of our
foreign currency hedging is recognized in earnings.

As
of December 31, 2005 we had outstanding option and forward contracts in the amount of
$10.2 million. These transactions were for a period of up to twelve months. In 2006 we
expect to reclassify an insignificant amount of unrealized losses from accumulated
other comprehensive loss to revenues. We enter into option and forward
contracts only with well-established institutions, and therefore we believe that the
liabilities that were owed to us at December 31, 2005 will be realized.

# Interest rate risk

Our
exposure to market risk for changes in interest rates relates primarily to our investment
in marketable securities. Our marketable securities portfolio includes government debt
instruments (U.S., European and other) and corporate debt instruments. The fair value of
our long and short-term securities is based upon their market values as of December 31,
2005.

76

---

---



In
2004, we entered into forward rate agreements in the amount of $125 million. By using
forward rate agreements, we convert a portion of our floating rate investments to a fixed
rate basis, thus reduced the impact of interest rate changes on future interest income.
The agreements were all settled during 2005, resulting in a loss of $95,000. This loss is
presented in the statement of income as financial income (loss).

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

Not
applicable.

77

---

---



# 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)
          As of the end of the period covered by this report on Form 20-F, we performed
an           evaluation under the supervision and with the participation of our
management           including our Chief Executive Officer and Chief Financial Officer,
of the           effectiveness of the design and operation of our disclosure controls and
          procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act).           Based on this evaluation, our management, including our Chief Executive
Officer           and Chief Financial Officer, concluded that our disclosure controls and
          procedures as of the end of the period covered by this report, are effective to
          provide reasonable assurance that information required to be disclosed in
          filings and submissions under the Exchange Act is recorded, processed,
          summarized and reported within the time periods specified in the Securities and
          Exchange Commissions rules and forms.

(b)
          During the period covered by this report, no changes in our internal controls
          over financial reporting have occurred that materially affected, or are
          reasonably likely to materially affect, our internal controls over financial
          reporting. There have been no significant changes in our internal controls or
in           other factors that could significantly affect these controls after the date
that           we evaluated the controls. Therefore, we did not need to take any
corrective           actions with regard to significant deficiencies and material
weaknesses.

|ITEM 16. |  | Reserved.
|-------- |  | ---------

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

Our
board of directors has determined that Mr. Irwin Federman is an audit committee
financial expert and that he is independent under the applicable Securities and
Exchange Commission and NASDAQ National Market rules.

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

In
March 2004 our board of directors adopted a Code of Ethics that applies to all of our
employees, directors and officers, including the Chief Executive Officer, Chief Financial
Officer, principal accounting officer and other individuals who perform similar functions.
You can obtain a copy of our Code of Ethics without charge, by sending a written request
to our investor relations department at Check Point Software Technologies Inc., Attn:
Investor Relations, 800 Bridge Parkway, Redwood City, California 94065 U.S.A., tel:
650-628-2000, email: ir@us.checkpoint.com.

78

---

---



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

# Fees and services

The
table below summarizes the audit fees that we paid during 2004 and 2005.

|                       | Year Ended December 31, 2004 | Year Ended December 31, 2005
|---------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Audit fees             |                              |                             
|Audit-related fees (1) |                              |                             
|Tax fees (2)           |                              |                             
|                       |                              |                             
|Total                  |                              |                             
|                       |                              |                             

---

|(1) | Audit-related
fees are fees related to due diligence investigations                and to other
assignments relating to internal control and procedures over                financial
reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Tax
fees are fees for professional services rendered by our auditors                for
tax compliance, tax advice on actual or contemplated transactions, tax
               consulting associated with international transfer prices and employee
benefits.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit committees pre-approval policies and
procedures

Our
audit committee chooses and engages the independent auditors to audit our financial
statements, with the approval of our shareholders as required by Israeli law. In March
2004 our audit committee adopted a policy requiring our management to obtain the audit
committees approval before engaging our independent auditors to provide any audit or
permitted non-audit services to us or our subsidiaries. The policy was last amended in
October 2004. This policy, which is designed to assure that such engagements do not impair
the independence of our auditors, requires pre-approval from the audit committee on an
annual basis for the various audit and non-audit services that may be performed by our
auditors. In addition, the audit committee limited the aggregate amount of fees our
auditors may receive during 2005 and 2006 for non-audit services in certain categories.

Our
controller reviews all management requests to engage our auditors to provide services, and
approves a request if the requested services are of those that have received pre-approval
from our audit committee. We inform our audit committee of these approvals at least
quarterly and prior to the commencement of the related services. If the services are not
included in those categories that were pre-approved by our audit committee, then specific
approval is needed from our audit committee before these services are received. Our audit
committee is not permitted to approve the engagement of our auditors for any services that
would be inconsistent with maintaining the auditors independence or that are not
permitted by applicable law.

|ITEM 16D. |  | EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
|--------- |  | --------------------------------------------------------

Not
applicable.

79

---

---



|ITEM 16E. |  | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- |  | ---------------------------------------------------------------------

Our
board of directors approved three programs to repurchase ordinary shares. The first
program was announced on October 28, 2003 and ended on August 24, 2004, and authorized the
repurchase of up to $200 million of our ordinary shares. The second program was announced
on October 28, 2004 and ended on May 31, 2005, and also authorized the repurchase of up to
$200 million of our ordinary shares. The third program was announced on July 25, 2005 and
is in effect as of March 13, 2006, and authorizes the repurchase of up to $200 million of
our ordinary shares.

During
2005 we spent $236.9 million to repurchase 10.6 million ordinary shares under the second
and third repurchase programs. The table below provides detailed information.

|Period                     | (a) Total
Number of
Ordinary Shares
Purchased | (b) Average
Price per
Ordinary Share | (c) Total
Number of
Ordinary Shares
Purchased as
Part of Publicly
Announced Plans
or Programs | (d) Approximate
Dollar Value of
Ordinary Shares
that May Yet Be
Purchased Under
the Plans or
Programs
|-------------------------- | --------------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------
|
|
|
|
|January 1 - January 31     |                                               |                                      |                                                                                               | N/A                                                                                                  
|February 1 - February 28   |                                               |                                      |                                                                                               | 2,130,000                                                                                            
|March 1 - March 31         |                                               |                                      |                                                                                               | N/A                                                                                                  
|April 1 - April 30         |                                               |                                      |                                                                                               | 1,627,500                                                                                            
|May 1 - May 31             |                                               |                                      |                                                                                               | 3,050,800                                                                                            
|June 1 - June 30           |                                               |                                      |                                                                                               | N/A                                                                                                  
|July 1 - July 31           |                                               |                                      |                                                                                               | 400,000                                                                                              
|August 1 - August 31       |                                               |                                      |                                                                                               | 2,158,000                                                                                            
|September 1 - September 30 |                                               |                                      |                                                                                               | N/A                                                                                                  
|October 1 - October 31     |                                               |                                      |                                                                                               | 100,000                                                                                              
|November 1 - November 30   |                                               |                                      |                                                                                               | 1,149,200                                                                                            
|December 1 - December 31   |                                               |                                      |                                                                                               | N/A                                                                                                  
|                           |                                               |                                      |                                                                                               |                                                                                                      
|Total                      |                                               |                                      |                                                                                               | 10,615,500                                                                                           
|                           |                                               |                                      |                                                                                               |                                                                                                      

80

---

---



# PART III

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

Check
Point has responded to Item 18.

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

See
pages F-1 to F-35 below.

81

---

---



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

|1 |  | Articles
of Association
|- |  | -----------------------

|4.1 |  | Form
of Indemnification Agreement between Check Point and its officers and directors
|--- |  | ------------------------------------------------------------------------------------

|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              (incorporated  by
 reference  to exhibit 4.2 of Check  Point's  annual  report on Form 20-F for the year
ended              December 31, 2003)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | The
1996 Israel  Stock Option  Plan,  adopted by our board of directors on April 12, 1996,
 and as restated in           May 2004  (incorporated  by reference to exhibit 4.5 of
Check Point's  annual report on Form 20-F for the year              ended December 31,
2004)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | The
Restated and Amended 1996  Section 102 Share Option Plan,  effective as of January 2000
 (incorporated  by              reference to exhibit 4.6 of Check Point's annual report
on Form 20-F for the year ended December 31, 2004)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 |  | Addendum
to the  Restated and Amended  1996  Section 102 Share  Option  Plan,  effective  as of
February  2003           (incorporated  by  reference  to exhibit 4.7 of Check  Point's
 annual  report on Form 20-F for the year ended              December 31, 2004)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 |  | The
1996 United  Stated Stock Option Plan,  adopted by the Board of Directors on April 12,
1996  (incorporated              by reference to exhibit 4.8 of Check Point's annual
report on Form 20-F for the year ended December 31, 2004)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7 |  | 2005
Israel Equity Incentive Plan, adopted by our board of directors on September 27, 2005
|--- |  | ------------------------------------------------------------------------------------------

|4.8 |  | 2005
United States Equity Incentive Plan, adopted by our board of directors on September 27,
2005
|--- |  | -------------------------------------------------------------------------------------------------

|4.9 |  | Zone
Labs, Inc. 1998 Stock Option Plan, as amended August 26, 2003  (incorporated  by
reference to exhibit 4.1              of Check Point's Registration Statement on Form S-8
filed with the SEC on April 15, 2004)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 |  | Employee
Stock Purchase Plan, adopted by our board of directors on November 24, 1996
|---- |  | ------------------------------------------------------------------------------------

82

---

---



|4.11 |  | Agreement
 and Plan of Merger by and among Check  Point  Software  Technologies  Ltd.,  Check
 Point  Software              Technologies, Inc., Seyfert Acquisition Corporation, and
Sourcefire, Inc., dated as of October 5, 2005
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8 |  | List
of  subsidiaries  (incorporated  by reference to "Item 4 -  Information  on Check Point -
 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 toss.302 of the Sarbanes-Oxley Act of 2002
|---- |  | ------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of the Chief Financial Officer pursuant toss.302 of the Sarbanes-Oxley Act of 2002
|---- |  | ------------------------------------------------------------------------------------------------

|13 |  | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
|-- |  | -------------------------------------------------------------------------------------------------------

83

---

---



CHECK
POINT SOFTWARE TECHNOLOGIES LTD.

AND
ITS SUBSIDIARIES

CONSOLIDATED
FINANCIAL STATEMENTS

AS
OF DECEMBER 31, 2005

IN
U.S. DOLLARS

INDEX

|                                                          |           
|--------------------------------------------------------- | ----------
|                                                          | Page      
|                                                          |           
|                                                          |           
|Report of Independent Registered
  Public Accounting Firm | F-2       
|                                                          |           
|Consolidated Balance
  Sheets                             | F-3 - F-4 
|                                                          |           
|Consolidated Statements
  of Income                       | F-5       
|                                                          |           
|Statements of Changes in
  Shareholders Equity           | F-6 - F-7 
|                                                          |           
|Consolidated Statements
  of Cash Flows                   | F-8       
|                                                          |           
|Notes to Consolidated
  Financial Statements              | F-9 - F-35

---

---



(ERNST & YOUNG LOGO)

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

We
have audited the accompanying consolidated balance sheets of Check Point
Software Technologies Ltd. (the Company) and its subsidiaries as of December
31, 2004 and 2005, 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, 2005. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2004 and 2005, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, in conformity with U.S.
generally accepted accounting principles.

|                 |                                 
|---------------- | --------------------------------
|Tel-Aviv, Israel | KOST FORER
GABBAY & KASIERER    
|January 29, 2006 | A Member of Ernst & Young Global

F - 2

---

---



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

|                                                                                                                                                          |  |                |           |      |   |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---- | - | --------- | 
|                                                                                                                                                          |  | December
  31, |          
|                                                                                                                                                          |  |                |          
|                                                                                                                                                          |  | 2004           |           | 2005 |  
|                                                                                                                                                          |  |                |           |      |  
|ASSETS                                                                                                                                                    |  |                |           |      |   |           | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|CURRENT ASSETS:                                                                                                                                           |  |                |           |      |   |           | 
|Cash and cash equivalents                                                                                                                                 |  | $              | 162,444   |      | $ | 298,531   | 
|Marketable securities                                                                                                                                     |  |                | 791,799   |      |   | 1,044,312 | 
|Trade receivables (net of
  allowances for doubtful accounts and product returns of $ 7,041
  and $ 5,597 as of December 31, 2004 and 2005, respectively) |  |                | 96,006    |      |   | 127,129   | 
|Other current assets                                                                                                                                      |  |                | 22,180    |      |   | 24,006    | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|Total current assets                                                                                                                                      |  |                | 1,072,429 |      |   | 1,493,978 | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|LONG-TERM ASSETS:                                                                                                                                         |  |                |           |      |   |           | 
|Marketable securities                                                                                                                                     |  |                | 623,045   |      |   | 382,500   | 
|Property and equipment, net                                                                                                                               |  |                | 8,144     |      |   | 7,665     | 
|Severance pay fund                                                                                                                                        |  |                | 5,237     |      |   | 5,644     | 
|Deferred tax asset, net                                                                                                                                   |  |                | 8,704     |      |   | 7,323     | 
|Intangible assets, net                                                                                                                                    |  |                | 25,857    |      |   | 20,215    | 
|Goodwill                                                                                                                                                  |  |                | 175,536   |      |   | 174,295   | 
|Other assets                                                                                                                                              |  |                | 867       |      |   | 875       | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|Total long-term assets                                                                                                                                    |  |                | 847,390   |      |   | 598,517   | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|                                                                                                                                                          |  |                |           |      |   |           | 
|Total assets                                                                                                                                              |  | $              | 1,919,819 |      | $ | 2,092,495 | 
|                                                                                                                                                          |  |                |           |      |   |           | 

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

F - 3

---

---



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

|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---- | - | --------- | -
|                                                                                                                                                                                                                                                                  |  | December
  31, |          
|                                                                                                                                                                                                                                                                  |  |                |          
|                                                                                                                                                                                                                                                                  |  | 2004           |           | 2005 |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|LIABILITIES AND SHAREHOLDERS
  EQUITY                                                                                                                                                                                                                            |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                              |  |                |           |      |   |           |  
|Trade payables                                                                                                                                                                                                                                                    |  | $              | 6,046     |      | $ | 5,726     |  
|Employee and payroll accruals                                                                                                                                                                                                                                     |  |                | 38,043    |      |   | 34,677    |  
|Deferred revenues                                                                                                                                                                                                                                                 |  |                | 141,114   |      |   | 168,998   |  
|Accrued expenses and other
  liabilities                                                                                                                                                                                                                          |  |                | 95,771    |      |   | 98,458    |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|Total
  current liabilities                                                                                                                                                                                                                                       |  |                | 280,974   |      |   | 307,859   |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|ACCRUED SEVERANCE PAY                                                                                                                                                                                                                                             |  |                | 8,021     |      |   | 8,915     |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|Total
  liabilities                                                                                                                                                                                                                                               |  |                | 288,995   |      |   | 316,774   |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                                                                                             |  |                |           |      |   |           |  
|Share capital -                                                                                                                                                                                                                                                   |  |                |           |      |   |           |  
|Preferred shares, NIS 0.01 par
  value, 5,000,000 shares authorized, no shares issued                                                                                                                                                                             |  |                | -         |      |   | -         |  
|Deferred shares, NIS 1 par
  value, 10 shares authorized, 1 share issued and outstanding                                                                                                                                                                          |  |                | -         |      |   | -         |  
|Ordinary shares, NIS 0.01 par value,
  500,000,000 shares authorized, 260,191,598 and 261,223,970 shares issued as
  of December 31, 2004 and 2005, respectively; 248,217,798 and 244,309,929
  shares outstanding as of December 31, 2004 and 2005, respectively |  |                | 771       |      |   | 774       |  
|Additional paid-in capital                                                                                                                                                                                                                                        |  |                | 369,246   |      |   | 386,529   |  
|Deferred stock-based
  compensation                                                                                                                                                                                                                               |  |                | (10,342   | )    |   | (2,831    | )
|Treasury shares at cost -
  11,973,800 and 16,914,041 Ordinary shares as of December 31, 2004 and
  2005, respectively                                                                                                                                            |  |                | (244,586  | )    |   | (380,834  | )
|Accumulated other comprehensive
  income (loss)                                                                                                                                                                                                                   |  |                | 206       |      |   | (8,952    | )
|Retained earnings                                                                                                                                                                                                                                                 |  |                | 1,515,529 |      |   | 1,781,035 |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|Total
  shareholders equity                                                                                                                                                                                                                                      |  |                | 1,630,824 |      |   | 1,775,721 |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  
|Total
  liabilities and shareholders equity                                                                                                                                                                                                                      |  | $              | 1,919,819 |      | $ | 2,092,495 |  
|                                                                                                                                                                                                                                                                  |  |                |           |      |   |           |  

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

F - 4

---

---



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

|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ---- | - | ------- | ----- | - | ------- | ----- | 
|                                               |                                                                                                                                                      | Year ended
  December 31, |        
|                                               |                                                                                                                                                      |                           |        
|                                               |                                                                                                                                                      | 2003                      |         | 2004 |   | 2005    |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |        
|Revenues:                                      |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Products and licenses                          |                                                                                                                                                      | $                         | 230,096 |      | $ | 275,677 |       | $ | 281,364 |      
|Software subscriptions                         |                                                                                                                                                      |                           | 161,690 |      |   | 196,327 |       |   | 239,319 |      
|Support, training and consulting               |                                                                                                                                                      |                           | 40,786  |      |   | 43,356  |       |   | 58,667  |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Total
  revenues                               |                                                                                                                                                      |                           | 432,572 |      |   | 515,360 |       |   | 579,350 |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Operating
  expenses:  *)                      |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Cost of revenues                               |                                                                                                                                                      |                           | 18,923  |      |   | 27,750  |       |   | 30,540  |      
|Research and development                       |                                                                                                                                                      |                           | 29,314  |      |   | 44,483  |       |   | 50,542  |      
|Selling and marketing                          |                                                                                                                                                      |                           | 111,007 |      |   | 135,712 |       |   | 142,336 |      
|General and administrative                     |                                                                                                                                                      |                           | 17,644  |      |   | 24,098  |       |   | 24,244  |      
|Acquired in-process research and
  development |                                                                                                                                                      |                           | -       |      |   | 23,098  |       |   | -       |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Total
  operating expenses                     |                                                                                                                                                      |                           | 176,888 |      |   | 255,141 |       |   | 247,662 |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Operating
  income                             |                                                                                                                                                      |                           | 255,684 |      |   | 260,219 |       |   | 331,688 |      
|Financial
  income, net                        |                                                                                                                                                      |                           | 43,506  |      |   | 44,777  |       |   | 54,177  |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Income
  before taxes on income                |                                                                                                                                                      |                           | 299,190 |      |   | 304,996 |       |   | 385,865 |      
|Taxes on
  income                              |                                                                                                                                                      |                           | 55,311  |      |   | 56,603  |       |   | 66,181  |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Net income                                     |                                                                                                                                                      | $                         | 243,879 |      | $ | 248,393 |       | $ | 319,684 |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Earnings per
  share:                          |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Basic earnings per Ordinary share              |                                                                                                                                                      | $                         | 0.98    |      | $ | 0.99    |       | $ | 1.30    |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|Diluted earnings per Ordinary share            |                                                                                                                                                      | $                         | 0.96    |      | $ | 0.95    |       | $ | 1.27    |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |      
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 
|*)                                             | Includes
  amortization of deferred stock-based compensation in conjunction with the
  acquisition of Zone Labs to employees in the following items: |                          
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 
|                                               | Cost of
  revenues                                                                                                                                   |                           |         |      |   | $       | 137   |   | $       | 408   | 
|                                               | Research and
  development                                                                                                                           |                           |         |      |   |         | 1,297 |   |         | 1,252 | 
|                                               | Selling and
  marketing                                                                                                                              |                           |         |      |   |         | 2,745 |   |         | 1,825 | 
|                                               | General and
  administrative                                                                                                                         |                           |         |      |   |         | 441   |   |         | 260   | 
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 
|                                               | Total
  stock-based compensation expenses                                                                                                            |                           |         |      |   | $       | 4,620 |   | $       | 3,745 | 
|                                               |                                                                                                                                                      |                           |         |      |   |         |       |   |         |       | 

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

F - 5

---

---



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

|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --- | ------------------------------ | - | ------------------------------------- | - | --------------------------- | ------- | --------------------------------------------------- | - | ------------------- | - | ------------------------------ | ---- | ------------------------------ | - | --------- |  | - | ------- | - | - | --------- | -
|                                                                                                                                                |  | Share
  capital |     | Additional
  paid-in
  capital |   | Deferred
  stock-based
  compensation |   | Treasury
  shares
  at cost |         | Accumulated
  other
  comprehensive
  income (loss) |   | Retained
  earnings |   | Total
  comprehensive
  income |      | Total
  shareholders
  equity |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Balance as of January 1, 2003                                                                                                                   |  | $               | 740 |                                | $ | 163,235                               |   | $                           | -       |                                                     | $ | -                   |   | $                              | (190 | )                              | $ | 1,023,257 |  |   |         |   | $ | 1,187,042 |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Tax benefit related to exercise of stock options                                                                                                |  |                 | -   |                                |   | 12,566                                |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 12,566    |  
|Issuance of shares under stock purchase plan and upon exercise of
  options (3,367,231 Ordinary shares), net                                    |  |                 | 7   |                                |   | 17,703                                |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 17,710    |  
|Comprehensive income -                                                                                                                          |  |                 |     |                                |   |                                       |   |                             | -       |                                                     |   | -                   |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Realized loss on hedging derivative
instruments                                                                                                 |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | 190  |                                |   | -         |  | $ | 190     |   |   | 190       |  
|Unrealized gain on hedging derivative
instruments                                                                                               |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | 158  |                                |   | -         |  |   | 158     |   |   | 158       |  
|Net income                                                                                                                                      |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | 243,879   |  |   | 243,879 |   |   | 243,879   |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Total comprehensive income                                                                                                                      |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  | $ | 244,227 |   |   |           |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Balance as of December 31, 2003                                                                                                                 |  |                 | 747 |                                |   | 193,504                               |   |                             | -       |                                                     |   | -                   |   |                                | 158  |                                |   | 1,267,136 |  |   |         |   |   | 1,461,545 |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Tax benefit related to exercise of stock options                                                                                                |  |                 | -   |                                |   | 1,160                                 |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 1,160     |  
|Issuance of shares under stock purchase plan and upon exercise of
  options (5,577,172 Ordinary shares), net                                    |  |                 | 12  |                                |   | 34,469                                |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 34,481    |  
|Issuance of shares in conjunction with the acquisition of Zone Labs,
  net (5,338,368 Ordinary shares)                                          |  |                 | 12  |                                |   | 91,352                                |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 91,364    |  
|Stock options assumed in conjunction with the acquisition of Zone
Labs
  (2,847,365 options for Ordinary shares)                                |  |                 | -   |                                |   | 50,393                                |   |                             | (16,594 | )                                                   |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 33,799    |  
|Reversal of deferred stock-based compensation upon forfeiture of
  options issued to employees in conjunction with the acquisition of Zone Labs |  |                 | -   |                                |   | (1,632                                | ) |                             | 1,632   |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | -         |  
|Treasury shares at cost (11,973,800 Ordinary shares)                                                                                            |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | (244,586            | ) |                                | -    |                                |   | -         |  |   |         |   |   | (244,586  | )
|Amortization of deferred stock-based compensation in conjunction with
  the acquisition of Zone Labs                                            |  |                 | -   |                                |   | -                                     |   |                             | 4,620   |                                                     |   | -                   |   |                                | -    |                                |   | -         |  |   |         |   |   | 4,620     |  
|Comprehensive income -                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Realized gain on hedging derivative
instruments                                                                                                 |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | (158 | )                              |   | -         |  | $ | (158    | ) |   | (158      | )
|Unrealized gain on hedging derivative
instruments                                                                                               |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | 206  |                                |   | -         |  |   | 206     |   |   | 206       |  
|Net income                                                                                                                                      |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | -    |                                |   | 248,393   |  |   | 248,393 |   |   | 248,393   |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Total comprehensive income                                                                                                                      |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  | $ | 248,441 |   |   |           |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  
|Balance as of December 31, 2004                                                                                                                 |  | $               | 771 |                                | $ | 369,246                               |   | $                           | (10,342 | )                                                   | $ | (244,586            | ) | $                              | 206  |                                | $ | 1,515,529 |  |   |         |   | $ | 1,630,824 |  
|                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |      |                                |   |           |  |   |         |   |   |           |  

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

F - 6

---

---



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

|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --- | ------------------------------ | - | ------------------------------------- | - | --------------------------- | ------- | --------------------------------------------------- | - | ------------------- | - | ------------------------------ | ------ | ------------------------------ | - | --------- | - | - | ------- | - | - | --------- | -
|                                                                                                                                                                                                          |  | Share
  capital |     | Additional
  paid-in
  capital |   | Deferred
  stock-based
  compensation |   | Treasury
  shares
  at cost |         | Accumulated
  other
  comprehensive
  income (loss) |   | Retained
  earnings |   | Total
  comprehensive
  income |        | Total
  shareholders
  equity |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|Balance as of December 31, 2004                                                                                                                                                                           |  | $               | 771 |                                | $ | 369,246                               |   | $                           | (10,342 | )                                                   | $ | (244,586            | ) | $                              | 206    |                                | $ | 1,515,529 |   |   |         |   | $ | 1,630,824 |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|Tax benefit related to exercise of stock options                                                                                                                                                          |  |                 | -   |                                |   | 12,613                                |   |                             | -       |                                                     |   | -                   |   |                                | -      |                                |   | -         |   |   |         |   |   | 12,613    |  
|Issuance of shares under stock purchase plan and upon exercise of
  options (1,030,741 Ordinary shares) and Issuance of shares in conjunction
  with the acquisition of Zone Labs (1,631 Ordinary shares) |  |                 | 3   |                                |   | 8,436                                 |   |                             | -       |                                                     |   | -                   |   |                                | -      |                                |   | -         |   |   |         |   |   | 8,439     |  
|Issuance of treasury shares under stock purchase plan and upon
  exercise of options (5,675,259 Ordinary shares)                                                                                          |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | 100,681             |   |                                | -      |                                |   | (54,178   | ) |   |         |   |   | 46,503    |  
|Reversal of deferred stock-based compensation upon forfeiture of
  options issued to employees in conjunction with the acquisition of Zone Labs                                                           |  |                 | -   |                                |   | (3,766                                | ) |                             | 3,766   |                                                     |   | -                   |   |                                | -      |                                |   | -         |   |   |         |   |   | -         |  
|Treasury shares at cost (10,615,500 Ordinary shares)                                                                                                                                                      |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | (236,929            | ) |                                | -      |                                |   | -         |   |   |         |   |   | (236,929  | )
|Amortization of deferred stock-based compensation in conjunction with
  the acquisition of Zone Labs                                                                                                      |  |                 | -   |                                |   | -                                     |   |                             | 3,745   |                                                     |   | -                   |   |                                | -      |                                |   | -         |   |   |         |   |   | 3,745     |  
|Comprehensive income, net of tax -                                                                                                                                                                        |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|Realized gain on hedging
  derivative instruments                                                                                                                                                         |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | (206   | )                              |   | -         |   | $ | (206    | ) |   | (206      | )
|Unrealized gain on hedging
  derivative instruments                                                                                                                                                       |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | 15     |                                |   | -         |   |   | 15      |   |   | 15        |  
|Unrealized losses on marketable securities, net of
$ 3,044 tax                                                                                                                                            |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | (8,967 | )                              |   | -         |   |   | (8,967  | ) |   | (8,967    | )
|Net income                                                                                                                                                                                                |  |                 | -   |                                |   | -                                     |   |                             | -       |                                                     |   | -                   |   |                                | -      |                                |   | 319,684   |   |   | 319,684 |   |   | 319,684   |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|Total comprehensive income                                                                                                                                                                                |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   | $ | 310,526 |   |   |           |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  
|Balance as of December 31, 2005                                                                                                                                                                           |  | $               | 774 |                                | $ | 386,529                               |   | $                           | (2,831  | )                                                   | $ | (380,834            | ) | $                              | (8,952 | )                              | $ | 1,781,035 |   |   |         |   | $ | 1,775,721 |  
|                                                                                                                                                                                                          |  |                 |     |                                |   |                                       |   |                             |         |                                                     |   |                     |   |                                |        |                                |   |           |   |   |         |   |   |           |  

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

F - 7

---

---



|                                                                
|----------------------------------------------------------------
|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                          
|AND ITS SUBSIDIARIES                                            
|CONSOLIDATED STATEMENTS OF CASH FLOWS                           
|                                                                
|U.S. dollars in thousands (except share and
  per share amounts)

|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |   | 
|---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ---- | - | ---------- | ------- | - | -------- | - | 
|                                                                                                           |                                                                                                      | Year ended
  December 31, |           
|                                                                                                           |                                                                                                      |                           |           
|                                                                                                           |                                                                                                      | 2003                      |            | 2004 |   | 2005       |        
|                                                                                                           |                                                                                                      |                           |            |      |   |            |        
|Cash flows from operating activities:                                                                      |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Net income                                                                                                 |                                                                                                      | $                         | 243,879    |      | $ | 248,393    |         | $ | 319,684  |  
|Adjustments required to reconcile net income to net
cash provided by
  operating activities:               |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Depreciation and amortization of property and
equipment                                                    |                                                                                                      |                           | 6,030      |      |   | 5,519      |         |   | 5,352    |  
|Amortization of marketable securities premium and
accretion of
  discount, net                             |                                                                                                      |                           | 17,652     |      |   | 17,528     |         |   | 11,066   |  
|Acquisition of in-process research and
development                                                         |                                                                                                      |                           | -          |      |   | 23,098     |         |   | -        |  
|Amortization of intangible assets                                                                          |                                                                                                      |                           | -          |      |   | 4,232      |         |   | 5,642    |  
|Stock-based compensation                                                                                   |                                                                                                      |                           | -          |      |   | 4,620      |         |   | 3,745    |  
|Deferred income taxes, net                                                                                 |                                                                                                      |                           | (556       | )    |   | 257        |         |   | 2,789    |  
|Decrease (increase) in trade receivables,
net                                                              |                                                                                                      |                           | 411        |      |   | (20,636    | )       |   | (31,123  | )
|Increase in other current assets and other
assets                                                          |                                                                                                      |                           | (1,935     | )    |   | (8         | )       |   | (328     | )
|Increase (decrease) in trade payables                                                                      |                                                                                                      |                           | (365       | )    |   | 922        |         |   | (320     | )
|Increase (decrease) in employees and payroll
accruals                                                      |                                                                                                      |                           | 1,299      |      |   | 5,620      |         |   | (3,366   | )
|Increase (decrease) in accrued expenses and other
liabilities                                              |                                                                                                      |                           | 4,849      |      |   | (15,906    | )       |   | 3,867    |  
|Increase in deferred revenues                                                                              |                                                                                                      |                           | 6,662      |      |   | 26,613     |         |   | 27,884   |  
|Tax benefit related to exercise of stock
options                                                           |                                                                                                      |                           | 12,566     |      |   | 1,160      |         |   | 12,613   |  
|Increase in accrued severance pay, net                                                                     |                                                                                                      |                           | 309        |      |   | 619        |         |   | 487      |  
|Other                                                                                                      |                                                                                                      |                           | 84         |      |   | 9          |         |   | -        |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Net cash provided by operating activities                                                                  |                                                                                                      |                           | 290,885    |      |   | 302,040    |         |   | 357,992  |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Cash flows from investing activities:                                                                      |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Cash paid in conjunction with the acquisition of
Zone Labs, net (a)                                        |                                                                                                      |                           | -          |      |   | (95,343    | )       |   | -        |  
|Proceeds from short-term bank deposits                                                                     |                                                                                                      |                           | 24,279     |      |   | 16,888     |         |   | -        |  
|Proceeds from marketable securities                                                                        |                                                                                                      |                           | 736,159    |      |   | 904,377    |         |   | 774,883  |  
|Investment in marketable securities                                                                        |                                                                                                      |                           | (1,183,323 | )    |   | (1,078,101 | )       |   | (809,928 | )
|Purchase of property and equipment                                                                         |                                                                                                      |                           | (2,971     | )    |   | (4,500     | )       |   | (4,873   | )
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Net cash used in investing activities                                                                      |                                                                                                      |                           | (425,856   | )    |   | (256,679   | )       |   | (39,918  | )
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Cash flows from financing activities:                                                                      |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Proceeds from issuance of shares under stock
purchase plan and upon
  exercise of options, net of expenses |                                                                                                      |                           | 17,710     |      |   | 34,481     |         |   | 54,942   |  
|Purchase of treasury shares at cost                                                                        |                                                                                                      |                           | -          |      |   | (244,586   | )       |   | (236,929 | )
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Net cash provided by (used in) financing activities                                                        |                                                                                                      |                           | 17,710     |      |   | (210,105   | )       |   | (181,987 | )
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Increase (decrease) in cash and cash equivalents                                                           |                                                                                                      |                           | (117,261   | )    |   | (164,744   | )       |   | 136,087  |  
|Cash and cash equivalents at the beginning of the year                                                     |                                                                                                      |                           | 444,449    |      |   | 327,188    |         |   | 162,444  |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Cash and cash equivalents at the end of the year                                                           |                                                                                                      | $                         | 327,188    |      | $ | 162,444    |         | $ | 298,531  |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Supplemental disclosure of cash flow information:                                                          |                                                                                                      |                           |            |      |   |            |         |   |          |  
|Cash paid during the year for income
taxes                                                                 |                                                                                                      | $                         | 31,913     |      | $ | 68,133     |         | $ | 46,418   |  
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |  
|(a)                                                                                                        | Acquisition of Zone Labs:                                                                            |                           |            |      |   |            |         |   |          |   | 
|                                                                                                           | Fair value of net assets acquired
  (excluding cash) and liabilities assumed at the acquisition date |                           |            |      |   | $          | 238,011 |   |          |   | 
|                                                                                                           | Amount paid in Ordinary shares and
options                                                           |                           |            |      |   |            | 142,668 |   |          |   | 
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |   | 
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |   | 
|                                                                                                           | Amount paid in cash (net of $ 19,141
  acquired cash)                                                |                           |            |      |   | $          | 95,343  |   |          |   | 
|                                                                                                           |                                                                                                      |                           |            |      |   |            |         |   |          |   | 

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

F - 8

---

---



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

|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | GENERAL
|            |        
|            | a.      | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |         | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |         | At the end
  of 2002, the Company established a wholly-owned Singapore resident subsidiary
  to manage most of its financial assets. The financial management is performed
  by the subsidiarys U.S. branch.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | b.      | In October
  2005 the Company announced that it has signed a definitive agreement to
  acquire privately held Sourcefire Inc. (Sourcefire) for a total
  consideration of approximately $ 225 million. The Company anticipates this
  consideration will consist of approximately $ 215 million in cash and the
  assumption of the Sourcefire stock option plan. In addition, the Company will
  assume the cost of additional options issued by Sourcefire after February 15,
  2006.  The agreement has been approved
  by the boards of directors of both companies and by the stockholders of
  Sourcefire. The closing of the acquisition is subject to regulatory
  approval.  Two U.S. regulatory
  applications have been submitted.  The
  Company received the United States anti-trust approval and is waiting for a
  determination on its pending application with the Committee on Foreign
  Investment in the United States (CFIUS) under the Exon-Florio
  legislation.  The Exon-Florio
  legislation provides for a 30-day review following notification of a
  potential acquisition. CFIUS has the option to extend the review period for
  an additional 45-day investigation. Refer to Note 12, subsequent event, for
  further information.
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | c.      | On March 26,
  2004, the Company acquired all of the outstanding shares of Zone Labs Inc.
  (Zone Labs), a leading provider of endpoint security solutions for enterprises,
  small businesses and consumers. The acquisition of Zone Labs enables the
  Company to deliver a comprehensive end-to-end Internet security to all types
  of customers. The transaction was accounted for using the purchase method of
  accounting and, accordingly the operating results of Zone Labs have been
  included in the Companys accompanying consolidated statements of income from
  the date of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 9

---

---



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

|            |                
|----------- | ---------------
|NOTE 1:    | GENERAL (Cont.)

| |                                                                 
| | ----------------------------------------------------------------
| | The total
  purchase price of Zone Labs was composed as follows:

| |                                        |  |   |         | 
| | -------------------------------------- |  | - | ------- | 
| | Cash paid                              |  | $ | 113,571 | 
| | Fair value
  of Ordinary shares issued |  |   | 92,275  | 
| | Fair value
  of options assumed        |  |   | 50,393  | 
| | Acquisition
  related costs            |  |   | 913     | 
| |                                        |  |   |         | 
| |                                        |  |   |         | 
| | Total
  purchase price                 |  | $ | 257,152 | 
| |                                        |  |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair
  value of the Ordinary shares issued was determined using the average closing
  price of the Companys Ordinary shares in the period of two trading days
  before and after the announcement date, December 15, 2003. The Company issued
  5,338,368 Ordinary shares based upon the number of shares of Zone Labs
  outstanding as of December 15, 2003 and the exchange ratio in accordance with
  the acquisition agreement. The Company also issued options to purchase
  approximately 2.8 million Ordinary shares in exchange for all Zone Labs
  employees stock options outstanding as of March 26, 2004. The fair value of
  the Companys options issued was determined using the Black-Scholes
  option-pricing model with the following assumptions: volatility of 44%;
  risk-free interest of 2%; dividend yield of 0%; and expected life of 0.7
  years after the option is vested.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The Company has
  allocated the purchase price of Zone Labs acquisition as of March 26, 2004
  as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                       |  |   |         |  
| | ------------------------------------- |  | - | ------- | -
| | Cash                                  |  | $ | 19,141  |  
| | Tangible
  assets                     |  |   | 4,806   |  
| | Deferred tax
  asset                  |  |   | 15,566  |  
| | Liabilities
  assumed                 |  |   | (15,642 | )
| | Deferred tax
  liability              |  |   | (12,036 | )
| | In-process
  research and development |  |   | 23,098  |  
| | Core
  technology                     |  |   | 21,659  |  
| | Contracts                             |  |   | 910     |  
| | Trademarks                            |  |   | 7,520   |  
| | Goodwill                              |  |   | 175,536 |  
| | Deferred
  stock-based compensation   |  |   | 16,594  |  
| |                                       |  |   |         |  
| |                                       |  |   |         |  
| | Total
  purchase price                |  | $ | 257,152 |  
| |                                       |  |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  recorded a deferred tax asset of $ 15,566 primarily relating to net operating
  loss and tax credit carryforwards, as well as reserves and accruals acquired
  as part of the acquisition. In addition, a deferred tax liability of $ 12,036
  was recorded for the difference between the assigned values and the tax bases
  of the core technology, trademarks and contracts acquired in the acquisition.                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Trademarks
  value represents the recognition value of Zone Labs brand name as a result
  of advertising expenditures for customer relations and the technological
  development to provide consistent, leading edge products and a strong
  research and development commitment by the Company. The value of the
  trademarks was determined using the discounted cash flow approach at a discount
  rate of 20%. Trademarks will not be amortized and will be tested for
  impairment at least annually.

F - 10

---

---



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

|            |                
|----------- | ---------------
|NOTE 1:    | GENERAL (Cont.)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill of
  $ 175,536 represents the excess of the purchase price over the fair market
  value of the net tangible and intangible assets acquired. Goodwill will not
  be amortized and will be tested for impairment at least annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | At the
  acquisition date, the Company recorded a $ 23,098 charge for acquired
  in-process research and development (IPR&D) in conjunction with
  projects which have not yet reached technological feasibility and which have
  no alternative future use. The value of IPR&D was determined using the
  discounted cash flow approach. The expected future cash flow attributable to
  the in-process technology was discounted at 25%. At the time of the
  acquisition it was estimated that these IPR&D projects were 32% complete,
  and will be completed over the next 3 years.                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In
  conjunction with the acquisition of Zone Labs, the Company recorded deferred
  stock-based compensation in the amount of $ 16,594, which represents the
  intrinsic value of approximately 2.8 million options to purchase the
  Companys Ordinary shares that the Company issued in exchange for Zone Labs
  unvested stock options. This amount is included in the total fair value of
  the Zone Labs options assumed of $ 50,393. Deferred stock-based compensation
  is amortized over the remaining vesting period of the related options on a straight-line
  basis. The estimated amortization of deferred stock-based compensation is
  $ 1,909 for 2006, $ 883 for 2007 and $ 39 for 2008.                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The results
  of operations of Zone Labs are included in the Companys consolidated
  financial statements from March 26, 2004. The following table presents pro
  forma results of operations and gives effect to the acquisition of Zone Labs
  as if the acquisition had been consummated at the beginning of each year. The
  unaudited pro forma results of operations are not necessarily indicative of
  what would have occurred had the acquisition been made as of the beginning of
  each period or of the results that may occur in the future. Net income for
  each period presented excludes the write-off of acquired IPR&D of $ 23,098
  and includes amortization of intangible assets related to the acquisition of
  $ 1,410 per quarter and amortization of deferred stock-based compensation of
  $ 1,540 per quarter. The unaudited pro forma information is as follows:

| |                              |  |                         |         |      |   |         | 
| | ---------------------------- |  | ----------------------- | ------- | ---- | - | ------- | 
| |                              |  | Year ended December 31, |        
| |                              |  |                         |        
| |                              |  | 2003                    |         | 2004 |  
| |                              |  |                         |         |      |  
| |                              |  | Unaudited               |        
| |                              |  |                         |        
|
| | Revenues                     |  | $                       | 457,247 |      | $ | 526,236 | 
| |                              |  |                         |         |      |   |         | 
| |                              |  |                         |         |      |   |         | 
| | Net income                   |  | $                       | 210,723 |      | $ | 244,123 | 
| |                              |  |                         |         |      |   |         | 
| |                              |  |                         |         |      |   |         | 
| | Basic
  earnings per share   |  | $                       | 0.83    |      | $ | 0.97    | 
| |                              |  |                         |         |      |   |         | 
| |                              |  |                         |         |      |   |         | 
| | Diluted
  earnings per share |  | $                       | 0.81    |      | $ | 0.93    | 
| |                              |  |                         |         |      |   |         | 

F - 11

---

---



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

|            |                
|----------- | ---------------
|NOTE 1:    | GENERAL (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | During 2003
  and 2004, approximately 13% of revenues in each year were derived from a
  single channel partner. During 2005, approximately 24% of the Companys
  revenues were derived from two channel partners, 12% each. Trade receivable
  balance from the largest channel partner was $ 8,300 as of December 31, 2004
  and from the two largest channel partners was $ 28,516 as of December 31,
  2005.

|            |                                
|----------- | -------------------------------
|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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                           | U.S. GAAP
  requires 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b.                                                                                                                                        | Financial
  statements in United States dollars:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                           | Most of the
  Companys revenues are denominated in United States dollars (dollars). In
  addition, most of the Companys costs are incurred in dollars, Euro and
  Israeli shekel. 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 (SFAS) No. 52 Foreign Currency
  Translation. Changes in currency exchange rates between the Companys
  functional currency and the currency in which a transaction is denominated
  are included in the Companys results of operations as financial income
  (expense) in the period in which the currency exchange rates change.
| |                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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 original maturities of three months or less at
  acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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 amounts)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e. | Investments
  in marketable securities:                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company
  accounts for investments in marketable securities in accordance with SFAS No.
  115, Accounting for Certain Investments in Debt and Equity Securities.                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Management
  determines the appropriate classification of its investments in government
  and corporate marketable debt securities at the time of purchase and
  reevaluates such determinations at each balance sheet date.                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Until 2005,
  debt securities were classified as held-to-maturity as the Company had the
  positive intent and ability to hold the securities to maturity and were
  stated at amortized cost.                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | In 2005,
  debt securities are classified as available for sale. Available for sale
  securities are carried at fair value, with the unrealized gains and losses,
  net of tax, reported in other comprehensive income.                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The
  amortized cost of debt securities is adjusted for amortization of premiums
  and accretion of discounts to maturity. Such amortization and interest are
  included in financial income, net. Interest and dividends on securities 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.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Auction rate
  securities are classified as available for sale and are carried at fair
  value.                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | In 2005, in
  the connection with the expected acquisition of Sourcefire the Company sold
  $ 41,971 of its securities.                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | f. | Property and
  equipment:                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Property and
  equipment are stated at cost, net of accumulated depreciation. Depreciation
  is calculated using the straight-line method over the estimated useful lives
  of the assets at the following annual rates:                                                                                                                                                                                         

| |                                      |  |                                                                  | 
| | ------------------------------------ |  | ---------------------------------------------------------------- | 
| |                                      |  | %                                                                | 
| |                                      |  |                                                                  | 
| |                                      |  |                                                                  | 
| | Computers
  and peripheral equipment |  | 33-50                                                            | 
| | Office
  furniture and equipment     |  | 10-20                                                            | 
| | Leasehold
  improvements             |  | The shorter of term of the lease or the useful life of the asset | 

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 amounts)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Impairment
  of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The
  Companys long-lived assets are reviewed for impairment in accordance with
  SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets
  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, 2004 and 2005, no impairment was recorded.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | h. | Goodwill and
  other intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Goodwill,
  indefinite-lived intangible assets and certain other purchased intangible
  assets have been recorded as a result of the acquisition of Zone Labs.
  Goodwill and indefinite-lived intangible assets are not amortized, but rather
  are subject to an annual impairment test. Other intangible assets are
  amortized using the straight-line basis over the estimated useful lives of
  four years.                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | SFAS No. 142
  requires goodwill and indefinite-lived intangible assets to be tested for
  impairment at least annually or between annual tests if certain events or
  indicators of impairment occur. The impairment test consists of a comparison
  of the fair value of an intangible asset with its carrying amount. If the
  carrying amount of an intangible asset exceeds its fair value, an impairment
  loss is recognized in an amount equal to that excess. Goodwill is tested for
  impairment at the reporting unit level by a comparison of the fair value of a
  reporting unit with its carrying amount. During 2003, 2004 and 2005, no
  impairment losses were identified.                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | i. | Research and
  development costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Research and
  development costs are charged to the statement of income as incurred. SFAS
  No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
  Otherwise Marketed, 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 - 14

---

---



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

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | j. | Revenue
  recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company
  derives its revenues from products and licenses, software subscriptions,
  support, training and consulting. The Company sells its products primarily
  through channel partners including distributors, resellers, OEMs, system
  integrators and MSPs, all of whom are considered end-users. The Company also
  sells its products directly to end users through its Web site.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 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. In 2005, the Company
  reported license related revenue, which related to sale of the right to use
  one of the Companys patents for unlimited period. Such revenues were
  recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
  Recognition in Financial Statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 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. Arrangements with payment terms extending beyond
  customary payment terms are considered not to be fixed or determinable. If
  the fee is considered not to be 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.                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Software
  subscription and support 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 consulting and
  training services are performed. Revenues earned on software arrangements
  involving multiple-elements are allocated to each undelivered element based
  on VSOE of fair value. The VSOE of fair value of the undelivered elements
  (software subscription, support, consulting services and training) is
  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 SFAS 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 $ 1,531 and $ 1,051 as of
  December 31, 2004 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Deferred
  revenue includes unearned amounts billed under software subscription and
  support contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F - 15

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | --------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | k.                                      | 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
  partially provided by monthly payments deposited with insurers; any unfunded
  amounts would be paid from operating funds and are covered by a reserve
  established by the Company.                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | 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, 2003, 2004 and 2005, were $ 1,437,
  $ 2,240 and $ 2,570, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | l.                                      | 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 generally not
  greater than $ 14 per year, of their annual compensation to the plan through
  salary deferrals, subject to IRS limits. From January 1, 1996
  (inception) to December 31, 2005, the Company made no matching contributions
  to the plan. In December 2005, the Company amended its 401(K) contribution
  plan to include a fixed matching contribution program. Effective from January
  1, 2006 the Company will match 50% of employee contributions to the plan up
  to a limit of 3% of their eligible compensation.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | m.                                      | Income
  taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | The Company
  accounts for income taxes in accordance with Statement of SFAS No. 109,
  Accounting for Income Taxes. 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.                                                                                 
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | n.                                      | Advertising
  expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         | Advertising
  costs are expensed as incurred. Advertising expenses for the years ended
  December 31, 2003, 2004 and 2005, were $ 8,371, $ 12,317 and $ 11,355,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 16

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            | o.                                      | Concentrations
  of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | Financial
  instruments that potentially subject the Company to concentrations of credit
  risk consist principally of cash and cash equivalents, marketable securities
  and trade receivables. The majority of the Companys cash and cash
  equivalents and marketable securities is held by the Companys Singapore
  resident subsidiary, invested in dollar and dollar-linked investments, and is
  deposited in major banks in the U.S. and Europe. Deposits in the U.S. may be
  in excess of insured limits and are not insured in other jurisdictions.
  Generally, these deposits may be redeemed upon demand and, therefore, bear
  minimal risk.                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The
  Companys marketable securities consist of investment-grade corporate bonds,
  mortgage and asset-backed, structured notes, U.S. government agency
  securities and sovereign bonds. The Companys investment policy, approved by
  the Investment Committee, limits the amount the Company may invest in any one
  type of investment or issuer, thereby reducing credit risk concentrations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The
  Companys trade receivables are geographically diversified and derived from
  sales to channel partners mainly in the United States, Europe and Asia.
  Concentration of credit risk with respect to trade receivables is limited by
  credit limits, ongoing credit evaluation and account monitoring procedures.
  The Company performs ongoing credit evaluations of its channel partners and
  establishes an allowance for doubtful accounts for specific debts that are
  doubtful of collection amounting to $ 5,510 and $ 4,546 as of December 31,
  2004 and 2005, respectively. The Company charges off receivables when they
  are deemed uncollectible. If market declines actual collection, experience
  may not meet expectations and may result in decreased cash flow and increased
  bad debt expense. Bad debt expense amounted to $ 927, $ 940 and $ 648 in 2003,
  2004 and 2005, respectively.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | p.                                      | Derivatives
  and hedging:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The Company
  accounts for derivatives and hedging based on SFAS No. 133, Accounting for
  Derivative Instruments and Hedging Activities. 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 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.                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | 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
  adopted a foreign currency cash flow hedging program with zero-cost collar
  contracts. The net gains (losses) recognized in revenues during 2003, 2004
  and 2005 were $ (173), $ 0 and $ 1,109, respectively. During 2003 and 2004, the
  Company entered into a foreign currency cash flow hedging programs with
  option contracts designated to hedge expenses in Euros. The net gain (loss)
  which offset expenses during 2003, 2004 and 2005 amounted to $ 655, $ 360 and
  $ (22), respectively.                                                                               

F - 17

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | 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 2003, 2004
  and 2005, representing the foreign exchange forward contract gains (losses),
  were $ 166, $ (144) and $ 113, respectively.                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | In 2003 and
  2004, the Company entered into forward rate agreements (FRA), in the amount
  of $ 25,000 and $ 125,000, respectively, 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
  settled in 2004 and 2005, respectively, resulting in a total gain (loss) of
  $ 204 and $ (95), respectively, presented in the statement of income as
  financial income.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | As of
  December 31, 2005, the Companys management believed that since the
  abovementioned activities were transacted with well-established institutions,
  the obligations owed to the Company will be fulfilled.                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | q.                                      | Basic and
  diluted earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | Basic
  earnings per share is computed based on the weighted average number of
  Ordinary shares outstanding during each year. Diluted earnings per share is
  computed based on the weighted average number of Ordinary shares outstanding
  during each year, plus dilutive potential Ordinary shares outstanding during
  the year, in accordance with SFAS No. 128, Earnings Per Share .                                                                                                                                                                                                    
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         | The total
  weighted average number of shares related to the outstanding options excluded
  from the calculations of diluted earnings per share, since they would have an
  anti-dilutive effect, were 8,859,208, 7,277,352 and 10,879,154 for 2003, 2004
  and 2005, respectively.                                                                                                                                                                                                                                                                                                               
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | r.                                      | 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 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 SFAS No. 148, Accounting for
  Stock-Based Compensation - transition and disclosure, which amended certain
  provision of SFAS 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.          

F - 18

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                   
|----------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | Pro forma
  information regarding the Companys net income and 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 2003, 2004 and 2005 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:                         

| |                                                  |  |                           |   |      |      |      |  |       |   | 
| | ------------------------------------------------ |  | ------------------------- | - | ---- | ---- | ---- |  | ----- | - | 
| |                                                  |  | Year ended
  December 31, |  
| |                                                  |  |                           |  
| | Employee Stock Options                           |  | 2003                      |   | 2004 |      | 2005 | 
| |                                                  |  |                           |   |      |      |      | 
| |                                                  |  |                           |   |      |      |      |  |       |   | 
| | Expected volatility                              |  | 44.0                      | % |      | 52.6 | %    |  | 50.84 | % | 
| | Risk-free interest                               |  | 2.5                       | % |      | 4.0  | %    |  | 4.4   | % | 
| | Dividend yield                                   |  | 0.0                       | % |      | 0.0  | %    |  | 0.0   | % | 
| | Expected life after the option is vested (years) |  | 0.7                       |   |      | 0.7  |      |  | 2.77  |   | 
| |                                                  |  |                           |   |      |      |      |  |       |   | 
| | Employee Stock Purchase Plan                     |  |                           |   |      |      |      |  |       |   | 
| |                                                  |  |                           |   |      |      |      |  |       |   | 
| |                                                  |  |                           |   |      |      |      |  |       |   | 
| | Expected volatility                              |  | 44.0                      | % |      | 41.0 | %    |  | 33.2  | % | 
| | Risk-free interest                               |  | 1.0                       | % |      | 1.9  | %    |  | 2.0   | % | 
| | Dividend yield                                   |  | 0.0                       | % |      | 0.0  | %    |  | 0.0   | % | 
| | Expected life (years)                            |  | 0.5                       |   |      | 0.5  |      |  | 0.5   |   | 

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

| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | -------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
| |                                                                                                                            |  | Year ended
  December 31, |        
| |                                                                                                                            |  |                           |        
| |                                                                                                                            |  | 2003                      |         | 2004 |   | 2005    | 
| |                                                                                                                            |  |                           |         |      |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Net income as reported                                                                                                     |  | $                         | 243,879 |      | $ | 248,393 |  | $ | 319,684 | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Add: Stock-based compensation
  expense included in reported net income in conjunction with the acquisition
  of Zone Labs |  |                           | -       |      |   | 4,620   |  |   | 3,745   | 
| | Deduct: Stock-based compensation expense
  determined under fair value method for all awards                               |  |                           | 37,262  |      |   | 48,022  |  |   | 50,237  | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Pro forma net income                                                                                                       |  | $                         | 206,617 |      | $ | 204,991 |  | $ | 273,192 | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Earnings per share:                                                                                                        |  |                           |         |      |   |         |  |   |         | 
| | Basic earnings per Ordinary
  share, as reported                                                                           |  | $                         | 0.98    |      | $ | 0.99    |  | $ | 1.30    | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Diluted earnings per Ordinary
  share, as reported                                                                         |  | $                         | 0.96    |      | $ | 0.95    |  | $ | 1.27    | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Basic pro forma earnings per
  Ordinary share                                                                              |  | $                         | 0.83    |      | $ | 0.82    |  | $ | 1.11    | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 
| | Diluted pro forma earnings
  per Ordinary share                                                                            |  | $                         | 0.82    |      | $ | 0.80    |  | $ | 1.11    | 
| |                                                                                                                            |  |                           |         |      |   |         |  |   |         | 

F - 19

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                   
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                   
|            | s.                                      | 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, 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 and bank deposits with
  quoted market prices is based on quoted market prices (see Note 3).                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                   
|            |                                         | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The fair
  value of derivative instruments is estimated by obtaining quotes from
  brokers.                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                   
|            | t.                                      | Reclassification:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         | Certain
  reclassifications have been made in the prior years consolidated financial
  statements and related note disclosures to conform to the current years
  presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | u.                                      | Comprehensive
  income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         | The Company
  accounts for comprehensive income in accordance with SFAS No. 130, Reporting
  Comprehensive Income. This statement establishes standards for the reporting
  and display of comprehensive income and its components in a full set of
  general purpose financial statements. Comprehensive income generally
  represents all changes in stockholders equity during the period except those
  resulting from investments by, or distributions to, stockholders. The Company
  determined that its items of comprehensive income relates to gain and loss on
  hedging derivative instruments and unrealized gains and losses on available
  for sale securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | v.                                      | Impact of
  recently issued accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         | In December 2004, the Financial Accounting Standards Board issued
  Statement No. 123 (revised 2004), Share-Based Payment (SFAS
  No. 123(R)), which replaces
  SFAS 123 and supersedes APB 25. SFAS No. 123(R) requires all share-based payments to
  employees, including grants of employee stock options and shares issued under
  the ESPP to be recognized in the financial statements based upon their fair
  values, beginning with the first interim or annual period after December 15,
  2005, with early adoption encouraged. The Company has the option to choose
  either the modified prospective or modified retrospective method. The Company
  currently expects to adopt SFAS No. 123(R), using the modified retrospective method of adoption which requires
  that compensation expense be recorded over the expected remaining life of all
  unvested stock options and restricted stock and for any new grants thereof at
  the beginning of the first quarter of adoption of SFAS No. 123(R) and prior periods will be restated to
  recognize compensation cost in the amount previously reported in the pro
  forma footnote disclosures under SFAS No. 123(R). The Company is currently evaluating the
  impact SFAS No. 123(R) will
  have on the Companys financial statements, and based on its preliminary
  analysis, expects that the adoption of the SFAS No. 123(R) fair value method will have a significant
  impact on the consolidated results of operations, although it will
  have no impact on the Companys overall consolidated financial position or
  consolidated cash flows.

F - 20

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         | Had the
  Company adopted SFAS No. 123(R) in prior periods, the impact of that standard
  would have approximated the impact of SFAS No. 123 as described in the
  disclosure of pro forma net income and earnings per share in Note 2(r) above.
  SFAS No. 123(R) also requires the benefits of tax deductions in excess of
  recognized compensation cost to be reported as a financing cash flow, rather
  than as an operating cash flow as required under current literature. This
  requirement will reduce net operating cash flows and increase net financing
  cash flows in periods after adoption. While the Company cannot estimate what
  those amounts will be in the future (because they depend on when employees
  exercise stock options, among other things), the amount of operating cash
  flows recognized in prior periods for such excess tax deductions were $12.6
  million in 2003, $1.2 million in 2004 and $12.6 in 2005.                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         | In May 2005,
  the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
  replacement of APB No. 20, Accounting Changes and SFAS No. 3, Reporting
  Accounting Changes in Interim Financial Statements. SFAS No. 154 provides
  guidance on the accounting for and reporting of accounting changes and error
  corrections. APB No. 20 previously required that most voluntary changes in accounting
  principles be recognized by including in net income for the period of the
  change, the cumulative effect of changing to the new accounting principle.
  SFAS No. 154 requires retroactive application to prior periods financial
  statements of a voluntary change in accounting principles unless it is
  impracticable. SFAS 154 is effective for accounting changes and corrections
  of errors made in fiscal years beginning after December 15, 2005. As of
  December 31, 2005, adoption of SFAS No. 154 will not have a material impact
  on the Companys financial position or results of operation.                                                                                                                                                                                                                                                                                         
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         | In November
  2005, the FASB issued FSP FAS 115-1. The FSP addresses the determination as
  to when an investment is considered impaired, whether that impairment is
  other than temporary, and the measurement of an impairment loss. The FSP also
  includes accounting considerations subsequent to the recognition of other
  than-temporary impairment and requires certain disclosures about unrealized
  losses that have not been recognized as other-than-temporary impairments. The
  guidance in this FSP amends SFAS No. 115, Accounting for Certain Investments
  in Debt and Equity. The FSP replaces the impairment evaluation guidance of
  EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
  Application to Certain Investments, with references to the existing
  other-than-temporary impairment guidance. The FSP clarifies that an investor
  should recognize an impairment loss no later than when the impairment is
  deemed other-than-temporary, even if a decision to sell an impaired security
  has not been made. The guidance in this FSP is to be applied to reporting
  periods beginning after December 15, 2005. As of December 31, 2005, adoption
  of FSP FAS 115-1 will not have a material impact on the Companys financial
  position or results of operations.

F - 21

---

---



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

|            |                                                                                        
|----------- | ---------------------------------------------------------------------------------------
|NOTE 3:    | MARKETABLE SECURITIES                                                                  
|            |                                                                                        
|            | Marketable
  securities with contractual maturities of less than 1 year are as follows:

| |                                                                |  |                         |         |                      |   |                       |  |            |        |                      |   |                      |  |                       |           |            |   |       |  |   |         |   |   |           | 
| | -------------------------------------------------------------- |  | ----------------------- | ------- | -------------------- | - | --------------------- |  | ---------- | ------ | -------------------- | - | -------------------- |  | --------------------- | --------- | ---------- | - | ----- |  | - | ------- | - | - | --------- | 
| |                                                                |  | December 31,            |        
| |                                                                |  |                         |        
| |                                                                |  | 2004                    |         | 2005                 |  
| |                                                                |  |                         |         |                      |  
| |                                                                |  | Amortized Cost /
  Cost |         | Grossunrealizedgains |   | Grossunrealizedlosses |  | Fair value |        | AmortizedCost / Cost |   | Grossunrealizedgains |  | Grossunrealizedlosses |           | Fair value |  
| |                                                                |  |                         |         |                      |   |                       |  |            |        |                      |   |                      |  |                       |           |            |  
|
| | Government and corporate debentures  fixed
  interest rate    |  | $                       | 403,835 |                      | $ | 1,175                 |  | $          | (1,524 | )                    | $ | 403,486              |  | $                     | 636,767   |            | $ | 49    |  | $ | (6,154  | ) | $ | 630,662   | 
| | Structured products (*)                                        |  |                         | 181,495 |                      |   | 4,428                 |  |            | (3,465 | )                    |   | 182,458              |  |                       | 211,200   |            |   | 3,125 |  |   | (7,364  | ) |   | 206,961   | 
| | Government and corporate debentures  floating
  interest rate |  |                         | 21,135  |                      |   | 2                     |  |            | (9     | )                    |   | 21,128               |  |                       | 26,101    |            |   | 17    |  |   | (8      | ) |   | 26,110    | 
| | Mortgage and asset backed securities (**)                      |  |                         | 65,278  |                      |   | 6                     |  |            | (1,277 | )                    |   | 64,007               |  |                       | 51,720    |            |   | 3,018 |  |   | (441    | ) |   | 54,297    | 
| | Auction rate securities                                        |  |                         | 120,056 |                      |   | 321                   |  |            | (2     | )                    |   | 120,375              |  |                       | 126,282   |            |   | -     |  |   | -       |   |   | 126,282   | 
| |                                                                |  |                         |         |                      |   |                       |  |            |        |                      |   |                      |  |                       |           |            |   |       |  |   |         |   |   |           | 
| |                                                                |  |                         |         |                      |   |                       |  |            |        |                      |   |                      |  |                       |           |            |   |       |  |   |         |   |   |           | 
| |                                                                |  | $                       | 791,799 |                      | $ | 5,932                 |  | $          | (6,277 | )                    | $ | 791,454              |  | $                     | 1,052,070 |            | $ | 6,209 |  | $ | (13,967 | ) | $ | 1,044,312 | 
| |                                                                |  |                         |         |                      |   |                       |  |            |        |                      |   |                      |  |                       |           |            |   |       |  |   |         |   |   |           | 

| |                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (*)                                                                                                                                                                                                                                                                                                                                                                            | The
  structured notes include mainly inverse floating interest rate bonds and
  range accrual bonds. Range accrual bonds are bonds where interest is paid
  only if a specified interest rate stays within a pre-established range,
  otherwise the bond pays no interest. Inverse floating rate bonds are bonds
  where the coupon varies inversely with changes in specified interest rates or
  indices (for example, LIBOR).
| |                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (**)                                                                                                                                                                                                                                                                                                                                                                           | The actual
  maturity dates may differ from the contractual maturities because debtors may
  have the right to call or prepay obligations without penalties.                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
  unrealized losses on the Companys investments in all types of securities are
  due to interest rate increases. Since the Company has the ability and intent
  to hold these investments until a recovery of fair value, which may be until
  maturity, the Company does not consider these investments to be
  other-than-temporarily impaired as of December 31, 2005.
| |                                                                                                                                                                                                                                                                                                                                                                               
| | Marketable
  securities with contractual maturities of after 1 year through 5 years are as
  follows:                                                                                                                                                                                                                                                                         

| |                                                                |  |                   |         |                      |   |                       |  |            |        |               |   |                      |  |                       |         |            |   |     |  |   |        |   |   |         | 
| | -------------------------------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | ---------- | ------ | ------------- | - | -------------------- |  | --------------------- | ------- | ---------- | - | --- |  | - | ------ | - | - | ------- | 
| |                                                                |  | December 31,      |        
| |                                                                |  |                   |        
| |                                                                |  | 2004              |         | 2005                 |  
| |                                                                |  |                   |         |                      |  
| |                                                                |  | Amortized 
  Cost |         | Grossunrealizedgains |   | Grossunrealizedlosses |  | Fair value |        | AmortizedCost |   | Grossunrealizedgains |  | Grossunrealizedlosses |         | Fair value |  
| |                                                                |  |                   |         |                      |   |                       |  |            |        |               |   |                      |  |                       |         |            |  
|
| | Government and corporate debentures  fixed
  interest rate    |  | $                 | 485,911 |                      | $ | 789                   |  | $          | (3,617 | )             | $ | 483,083              |  | $                     | 353,076 |            | $ | 13  |  | $ | (4,314 | ) | $ | 348,775 | 
| | Government and corporate debentures  floating
  interest rate |  |                   | 44,950  |                      |   | 29                    |  |            | (26    | )             |   | 44,953               |  |                       | 22,400  |            |   | 11  |  |   | -      |   |   | 22,411  | 
| | Mortgage and asset backed securities (*)                       |  |                   | 92,184  |                      |   | 77                    |  |            | (844   | )             |   | 91,417               |  |                       | 11,277  |            |   | 118 |  |   | (81    | ) |   | 11,314  | 
| |                                                                |  |                   |         |                      |   |                       |  |            |        |               |   |                      |  |                       |         |            |   |     |  |   |        |   |   |         | 
| |                                                                |  | $                 | 623,045 |                      | $ | 895                   |  | $          | (4,487 | )             | $ | 619,453              |  | $                     | 386,753 |            | $ | 142 |  | $ | (4,395 | ) | $ | 382,500 | 
| |                                                                |  |                   |         |                      |   |                       |  |            |        |               |   |                      |  |                       |         |            |   |     |  |   |        |   |   |         | 

| |     |                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | (*) | The actual
  maturity may differ from the contractual maturities, because debtors may have
  the right to call or prepay obligations without penalties.

F - 22

---

---



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

|            |                               |                                                                                                                                                                                                                                                                                                                                                                               
|----------- | ----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3:    | MARKETABLE SECURITIES (Cont.)
|            |                               |                                                                                                                                                                                                                                                                                                                                                                               
|            |                               | The
  unrealized losses on the Companys investments in all types of securities are
  due to interest rate increases. Since the Company has the ability and intent
  to hold these investments until a recovery of fair value, which may be until
  maturity, the Company does not consider these investments to be
  other-than-temporarily impaired as of December 31, 2005.
|            |                               |                                                                                                                                                                                                                                                                                                                                                                               
|NOTE 4:    | PROPERTY AND EQUIPMENT, NET  

| |                                    |  |                |        |      |   |        | 
| | ---------------------------------- |  | -------------- | ------ | ---- | - | ------ | 
| |                                    |  | December
  31, |       
| |                                    |  |                |       
| |                                    |  | 2004           |        | 2005 |  
| |                                    |  |                |        |      |  
| | Cost:                              |  |                |        |      |   |        | 
| | Computers and peripheral equipment |  | $              | 33,595 |      | $ | 36,851 | 
| | Office furniture and equipment     |  |                | 5,130  |      |   | 5,347  | 
| | Leasehold improvement and other    |  |                | 3,241  |      |   | 3,363  | 
| |                                    |  |                |        |      |   |        | 
| |                                    |  |                |        |      |   |        | 
| |                                    |  |                | 41,966 |      |   | 45,561 | 
| | Accumulated
  depreciation         |  |                | 33,822 |      |   | 37,896 | 
| |                                    |  |                |        |      |   |        | 
| |                                    |  |                |        |      |   |        | 
| | Property and
  equipment, net      |  | $              | 8,144  |      | $ | 7,665  | 
| |                                    |  |                |        |      |   |        | 

|            |                                                                                                                                                                                                                                 |                                                                                    
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------
|            | During 2004
  and 2005, the U.S. subsidiary of the Company recorded a reduction of approximately
  $ 900 and $ 1,278, respectively, to the cost and accumulated depreciation of
  fully depreciated equipment no longer in use.
|            |                                                                                                                                                                                                                                 |                                                                                    
|NOTE 5:    | GOODWILL AND INTANGIBLE ASSETS, NET                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                 |                                                                                    
|            | a.                                                                                                                                                                                                                              | Goodwill                                                                           
|            |                                                                                                                                                                                                                                 |                                                                                    
|            |                                                                                                                                                                                                                                 | Changes in
  Goodwill for the years ended December 31, 2004 and 2005 is as follows:

| |                               |  |                           |         |      |   |         |  
| | ----------------------------- |  | ------------------------- | ------- | ---- | - | ------- | -
| |                               |  | Year ended
  December 31, |        
| |                               |  |                           |        
| |                               |  | 2004                      |         | 2005 |  
| |                               |  |                           |         |      |  
| |                               |  |                           |         |      |   |         |  
| | Goodwill,
  beginning of year |  | $                         | -       |      | $ | 175,536 |  
| | Acquisition
  of Zone Labs    |  |                           | 175,536 |      |   | -       |  
| | Other                         |  |                           | -       |      |   | (1,241  | )
| |                               |  |                           |         |      |   |         |  
| |                               |  |                           |         |      |   |         |  
| | Goodwill, end of year         |  | $                         | 175,536 |      | $ | 174,295 |  
| |                               |  |                           |         |      |   |         |  

F - 23

---

---



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

|            |                                             |                                                                             
|----------- | ------------------------------------------- | ----------------------------------------------------------------------------
|NOTE 5:    | GOODWILL AND INTANGIBLE ASSETS, NET (Cont.)
|            |                                             |                                                                             
|            | b.                                          | Intangible
  assets, net                                                    
|            |                                             |                                                                             
|            |                                             | Net
  intangible assets, as of December 31, 2005 consisted of the following:

| |                   |  |                    |        |                             |   |             |  |   |        | 
| | ----------------- |  | ------------------ | ------ | --------------------------- | - | ----------- |  | - | ------ | 
| |                   |  | Original 
  amount |        | Accumulated 
  amortization |   | Net balance | 
| |                   |  |                    |        |                             |   |             | 
| |                   |  |                    |        |                             |   |             |  |   |        | 
| | Core
  technology |  | $                  | 21,659 |                             | $ | 9,476       |  | $ | 12,183 | 
| | Trademarks        |  |                    | 7,520  |                             |   | -           |  |   | 7,520  | 
| | Contracts         |  |                    | 910    |                             |   | 398         |  |   | 512    | 
| |                   |  |                    |        |                             |   |             |  |   |        | 
| |                   |  |                    |        |                             |   |             |  |   |        | 
| |                   |  | $                  | 30,089 |                             | $ | 9,874       |  | $ | 20,215 | 
| |                   |  |                    |        |                             |   |             |  |   |        | 

|            |                                        |                                                                                                                                                                                                                                              
|----------- | -------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                        | Amortization
  expense for the year ended December 31, 2005 amounted to $ 5,642. The
  estimated total amortization expense associated with acquired intangible
  assets is $ 5,642 for each of the years 2006 and 2007 and $ 1,411 for 2008.
|            |                                        |                                                                                                                                                                                                                                              
|NOTE 6:    | ACCRUED EXPENSES AND OTHER LIABILITIES

| |                                    |  |                |        |      |   |        | 
| | ---------------------------------- |  | -------------- | ------ | ---- | - | ------ | 
| |                                    |  | December
  31, |       
| |                                    |  |                |       
| |                                    |  | 2004           |        | 2005 |  
| |                                    |  |                |        |      |  
| |                                    |  |                |        |      |   |        | 
| | Income taxes
  payable and reserve |  | $              | 71,211 |      | $ | 74,386 | 
| | Marketing
  expenses payable       |  |                | 7,017  |      |   | 7,310  | 
| | Others                             |  |                | 17,543 |      |   | 16,762 | 
| |                                    |  |                |        |      |   |        | 
| |                                    |  |                |        |      |   |        | 
| |                                    |  | $              | 95,771 |      | $ | 98,458 | 
| |                                    |  |                |        |      |   |        | 

|            |                                        |                                                                                                                                                                                      
|----------- | -------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. The company leases vehicles under standard
  commercial operating leases.
|            |                                        |                                                                                                                                                                                      
|            |                                        | Aggregate
  minimum lease commitments under non-cancelable operating leases as of
  December 31, 2005, were as follows:                                                              

| |                      |  |   |        | 
| | -------------------- |  | - | ------ | 
| | 2006                 |  | $ | 4,406  | 
| | 2007                 |  |   | 1,395  | 
| | 2008                 |  |   | 1,324  | 
| | 2009                 |  |   | 1,217  | 
| | 2010 and there after |  |   | 2,086  | 
| |                      |  |   |        | 
| |                      |  |   |        | 
| |                      |  | $ | 10,428 | 
| |                      |  |   |        | 

F - 24

---

---



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

|            |                                                |                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 7:    | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                                |                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                | Rent
  expenses for the years ended December 31, 2003, 2004 and 2005, were $ 5,587,
  $ 6,901 and $ 7,385 respectively.
|            |                                                |                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | b.                                             | Litigation:                                                                                                            
|            |                                                |                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                | 1.                                                                                                                      | 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 a 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, and future prospects. Check Point retained counsels and
  filed a motion 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. On March 7, 2005 Check Points motion to dismiss was granted by
  the District Court. The issued Order permitted the lead plaintiffs to file an
  amended complaint to attempt to cure the defects in the dismissed complaint.
  On April 22, 2005, the lead plaintiffs filed their Consolidated Second
  Amended Complaint. On September 2, 2005, Check Point filed a motion to
  dismiss this complaint, and this motion is currently pending before the
  District Court. Check Point continues to dispute the allegations of
  wrongdoing and intends to defend the matter vigorously. Check Point maintains
  applicable insurance as well as a financial reserve in its financial
  statements as of December 31, 2005.
|            |                                                | 2.                                                                                                                      | On November
  16, 2004, a shareholder of SofaWare, a 64% owned subsidiary of the Company,
  filed a motion in the Tel-Aviv District Court requesting that the court
  authorize him to conduct a shareholders derivative suit against the Company
  on behalf of SofaWare in the amount of $ 5,149, not including linkage and
  interest. The suit relates to discounts, sales commissions and royalties that
  the plaintiff alleges the Company owes to SofaWare, with respect to products
  that were sold by or through the Company. Court hearings have taken place
  with respect to the plaintiffs request that the court authorize him to conduct
  a shareholders derivative suit against the Company on behalf of SofaWare.
  The parties submitted written summations and are waiting for the courts
  decision on this request. The matter is at a preliminary stage and the
  Companys management believes that the claim is without merit and intends to
  contest the claim vigorously.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F - 25

---

---



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

|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ---------------------------------------------- | ------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 7:    | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                               
|            |                                                |                     | On November
  22, 2005, the same shareholder also filed an initiating motion against the
  Company and against SofaWare. The motion alleges that some shareholders of
  SofaWare, among them the plaintiff, are entitled to exercise veto rights with
  respect to various actions of SofaWare. The plaintiff also filed a motion to
  obtain injunctive relief that would prevent SofaWare and the Company from
  taking certain actions with respect to the issuance of SofaWares securities
  to its employees and the determination of SofaWares auditors compensation.
  The Company has submitted a motion to dismiss the initiating motion, to
  convert it to a regular claim or to stay the proceedings as long as the
  shareholders first suit is pending. The Company has responded to the motion
  to obtain injunctive relief. The matter is at a very preliminary stage, but
  the Companys management believes that the claim is without merit and intends
  to contest the claim vigorously.                                                                                                                                                                                                                                                                                                                                
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                |                     | On December
  14, 2004, another shareholder and director of SofaWare filed an initiating
  motion in the Tel-Aviv District Court against the Company. The motion alleges
  that the Company is oppressing the plaintiff, who is a minority shareholder
  of SofaWare. Therefore, the plaintiff is requesting the court to compel the
  Company to purchase the plaintiffs shares in SofaWare, based upon a
  valuation to be determined by an independent expert. The plaintiff is also
  seeking disclosure of information and documents relating to the business
  plans of the Company and SofaWare, and to the inter-company balances between
  the two companies. The Company has submitted a motion to dismiss the
  initiating motion or to convert it to a regular claim, and a motion to stay
  the proceedings as long as the other shareholder first suit is pending. As
  also requested by the plaintiff, the court has stayed all proceedings in this
  case until after the court renders its decision with respect to the other
  shareholders request that he be authorized to conduct a shareholders
  derivative suit against the Company on behalf of SofaWare. The matter is at a
  preliminary stage and the Companys management believes that the claim is
  without merit and intends to contest the claim vigorously.
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|NOTE 8:    | TAXES ON INCOME                               
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | a.                                             | Israeli
  taxation:
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                | 1.                  | Corporate
  tax structure:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                |                     | Taxable
  income of Israeli companies is subject to tax at the rate of 34% in 2005, 31%
  in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and
  thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                | 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 Enterprises, under the Law, in six investment programs (the
  Programs).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F - 26

---

---



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

|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 8:    | TAXES ON INCOME (Cont.)
|            |                        
|            |                         |  | 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 by 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                         |  | The duration
  of tax benefits, for each of the Programs is subject to limitations of the
  earlier of 12 years from commencement of production, 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, 2005 approximately $ c661,000 are tax-exempt. If such 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 $ 165,000 would be incurred as of December 31, 2005. The
  Companys board of directors has determined that it will not distribute any
  amounts of its undistributed tax exempt income as dividend. The Company
  intends to reinvest the amount of its tax-exempt income. Accordingly, no
  deferred income taxes have been provided on income attributable to the
  Companys Approved Enterprise as the undistributed tax exempt income is
  essentially permanent in duration.
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                         |  | 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                         |  | On April 1,
  2005, an amendment to the Investment Law came into effect (the Amendment)
  and has significantly changed the provisions of the Investment Law. The
  Amendment limits the scope of enterprises which may be approved by the
  Investment Center by setting criteria for the approval of a facility as a
  Privileged Enterprise, such as provisions generally requiring that at least 25%
  of the Privileged Enterprises income will be derived from export.
  Additionally, the Amendment enacted major changes in the manner in which tax
  benefits are awarded under the Investment Law so that companies no longer
  require Investment Center approval in order to qualify for tax benefits.                                                                                                                                                                                                                                                                                                                                                     

F - 27

---

---



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

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

| |    |                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                         | In addition,
  the Investment Law provides that terms and benefits included in any
  certificate of approval already granted will remain subject to the provisions
  of the law as they were on the date of such approval. Therefore, the Check
  Point Ltds existing Approved Enterprise will generally not be subject to the
  provisions of the Amendment. As a result of the amendment, tax-exempt income
  generated under the provisions of the new law, will subject the Company to
  taxes upon distribution or liquidation and the Company may be required to record
  deferred tax liability with respect to such tax-exempt income.
| |    |                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | 3.                                                                                                                                                                                                                                                                                                                      | Check Point
  Ltd has final tax assessments through the year 2001. As of December 31, 2004
  and 2005, the Company has recorded an accrual of approximately $ 59,000 and
  $ 70,000, respectively, in respect of potential exposures related to tax years
  for which final assessment has not been received.                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | b. | Deferred tax
  assets and liabilities:                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | 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, 2004 and 2005, the
  Companys deferred taxes were in respect of the following:

| |                                                   |  |                |          |      |   |          |  
| | ------------------------------------------------- |  | -------------- | -------- | ---- | - | -------- | -
| |                                                   |  | December
  31, |         
| |                                                   |  |                |         
| |                                                   |  | 2004           |          | 2005 |  
| |                                                   |  |                |          |      |  
| | U.S. carryforward tax losses                      |  | $              | 265,543  |      | $ | 297,834  |  
| | Reserves and allowances                           |  |                | 9,696    |      |   | 7,440    |  
| | Research and development tax credit               |  |                | 6,579    |      |   | 7,204    |  
| |                                                   |  |                |          |      |   |          |  
| | Deferred tax assets before valuation
  allowance  |  |                | 281,818  |      |   | 312,478  |  
| | Valuation allowance                               |  |                | (263,066 | )    |   | (298,742 | )
| | Unrealized losses on marketable
  securities, net |  |                | -        |      |   | 3,044    |  
| |                                                   |  |                |          |      |   |          |  
| | Deferred tax asset                                |  |                | 18,752   |      |   | 16,780   |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                |          |      |   |          |  
| | Intangible assets                                 |  |                | (10,313  | )    |   | (8,086   | )
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                |          |      |   |          |  
| | Deferred tax liability                            |  |                | (10,313  | )    |   | (8,086   | )
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                |          |      |   |          |  
| | Deferred tax asset, net                           |  | $              | 8,439    |      | $ | 8,694    |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                |          |      |   |          |  
| | Domestic:                                         |  |                |          |      |   |          |  
| | Current deferred tax assets                       |  | $              | 1,625    |      | $ | 1,478    |  
| | Non current deferred tax asset                    |  |                | 746      |      |   | 565      |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                | 2,371    |      |   | 2,043    |  
| |                                                   |  |                |          |      |   |          |  
| | Foreign:                                          |  |                |          |      |   |          |  
| | Current deferred tax assets, net                  |  |                | 38       |      |   | 1,882    |  
| | Current deferred tax liability, net               |  |                | (1928    | )    |   | (1,989   | )
| | Non current deferred tax asset                    |  |                | 7,958    |      |   | 6,758    |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                | 6,068    |      |   | 6,651    |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  |                |          |      |   |          |  
| |                                                   |  | $              | 8,439    |      | $ | 8,694    |  
| |                                                   |  |                |          |      |   |          |  

F - 28

---

---



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

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    | Current deferred tax assets, net, is
  included within other current assets in the balance sheets. Current deferred
  tax liability, net, is included within accrued expenses and other liabilities
  in the balance sheets.                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The
  subsidiaries in the U.S. have provided valuation allowances in respect of
  deferred tax assets resulting from net operating loss carryforwards and
  research and development tax credit. Management currently believes that it is
  more likely than not that those deferred tax losses will not be realized in
  the foreseeable future.                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Through
  December 31, 2005, the U.S. subsidiaries had a U.S. federal loss carryforward
  of approximately $ 746,000 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 2012 -2025. Tax
  benefits related to employee stock option exercises will be credited to
  additional paid-in capital when realized.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 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.                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | c. | Income
  before taxes on income is comprised as follows:                                                                                                                                                                                                                                                                                                                                                                                 

| |          |  |                           |         |      |   |            |  |   |         | 
| | -------- |  | ------------------------- | ------- | ---- | - | ---------- |  | - | ------- | 
| |          |  | Year ended
  December 31, |        
| |          |  |                           |        
| |          |  | 2003                      |         | 2004 |   | 2005       | 
| |          |  |                           |         |      |   |            | 
| |          |  |                           |         |      |   |            |  |   |         | 
| | Domestic |  | $                         | 255,282 |      | $ | 282,408    |  | $ | 299,867 | 
| | Foreign  |  |                           | 43,908  |      |   | *)  22,588 |  |   | 85,998  | 
| |          |  |                           |         |      |   |            |  |   |         | 
| |          |  |                           |         |      |   |            |  |   |         | 
| |          |  | $                         | 299,190 |      | $ | 304,996    |  | $ | 385,865 | 
| |          |  |                           |         |      |   |            |  |   |         | 

| |    |                                             |                                                                 
| | -- | ------------------------------------------- | ----------------------------------------------------------------
| |    | *)                                          | Net of acquired in-process research and development of $ 23,098.
| |    |                                             |                                                                 
| | d. | Taxes on
  income are comprised as follows:

| |          |  |                           |        |      |   |        |  |   |        | 
| | -------- |  | ------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
| |          |  | Year ended
  December 31, |       
| |          |  |                           |       
| |          |  | 2003                      |        | 2004 |   | 2005   | 
| |          |  |                           |        |      |   |        | 
| |          |  |                           |        |      |   |        |  |   |        | 
| | Current  |  | $                         | 55,867 |      | $ | 56,346 |  | $ | 63,392 | 
| | Deferred |  |                           | (556   | )    |   | 257    |  |   | 2,789  | 
| |          |  |                           |        |      |   |        |  |   |        | 
| |          |  |                           |        |      |   |        |  |   |        | 
| |          |  | $                         | 55,311 |      | $ | 56,603 |  | $ | 66,181 | 
| |          |  |                           |        |      |   |        |  |   |        | 
| |          |  |                           |        |      |   |        |  |   |        | 
| | Domestic |  | $                         | 49,638 |      | $ | 45,159 |  | $ | 37,287 | 
| | Foreign  |  |                           | 5,673  |      |   | 11,444 |  |   | 28,894 | 
| |          |  |                           |        |      |   |        |  |   |        | 
| |          |  |                           |        |      |   |        |  |   |        | 
| |          |  | $                         | 55,311 |      | $ | 56,603 |  | $ | 66,181 | 
| |          |  |                           |        |      |   |        |  |   |        | 

F - 29

---

---



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

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

| |    |                                                                                                                                                                                                              | 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | 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, |        
| |                                                               |                                                                                                     |                           |        
| |                                                               |                                                                                                     | 2003                      |         | 2004 |   | 2005    |     
| |                                                               |                                                                                                     |                           |         |      |   |         |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | Income before taxes as
  reported in the statements of income |                                                                                                     | $                         | 299,190 |      | $ | 304,996 |      | $ | 385,865 |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | Statutory tax rate in Israel                                  |                                                                                                     |                           | 36      | %    |   | 35      | %    |   | 34      | %   
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | Decrease in taxes resulting
  from:                           |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | Effect of  Approved
  Enterprise status (*)                 |                                                                                                     |                           | (17     | %)   |   | (17     | %)   |   | (16     | %)  
| | Others, net                                                   |                                                                                                     |                           | (1      | %)   |   | 1       | %    |   | (1      | %)  
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | Effective tax rate                                            |                                                                                                     |                           | 18      | %    |   | 19      | %    |   | 17      | %   
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |     
| | (*)                                                           | Basic earnings per share
  amounts of the benefit resulting from the Approved Enterprise status   |                           | $       | 0.20 |   | $       | 0.21 |   | $       | 0.25 | 
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |      | 
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |      | 
| |                                                               | Diluted earnings per share
  amounts of the benefit resulting from the Approved Enterprise status |                           | $       | 0.20 |   | $       | 0.20 |   | $       | 0.24 | 
| |                                                               |                                                                                                     |                           |         |      |   |         |      |   |         |      | 

|            |                     
|----------- | --------------------
|NOTE 9:    | SHAREHOLDERS EQUITY

| |    |                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. The Companys board
  of directors has determined that it will not distribute any amounts of its
  undistributed tax exempt income as 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.                                                                                                                                                                                                                               

F - 30

---

---



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

|            |                             
|----------- | ----------------------------
|NOTE 9:    | SHAREHOLDERS EQUITY (Cont.)
|            |                             
|            | c.                          
|            |                             
|            |                             
|            |                             
|            |                             
|            |                             
|            |                             
|            |                             
|            | d.                          
|            |                             
|            |                             
|            |                             
|            |                             
|            |                             
|            |                             

F - 31

---

---



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

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | SHAREHOLDERS EQUITY (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | Under the
  terms of the 2005 Plans, options to purchase 50,000,000 Ordinary shares were
  reserved for issuance (increasing by 5,000,000 Ordinary Shares on January 1
  of each year beginning January 1, 2006), out of which as of December 31,
  2005, 48,381,670 options were available for future grant under the 2005
  Plans. As of December 31, 2005, 1,618,330 options were outstanding under the
  2005 Plans and 28,267,886 options were outstanding under the 1996 United
  States Stock Option Plan and 1996 Israel Stock Option Plan and 365,215 were
  outstanding under the Zone Labs plan.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | A summary of
  the Companys stock option activity and related information, including
  options under the Zone Labs Plan, is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       |  | 
| | ------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | --------------------------------- |  | ------ | - | ---- | ------ | ---- | - | ----- |  | - | ----- |  | - | ----- |  | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| |                                                                                                                     |  | Options
  (in thousands) |        | Weighted
  average exercise price | 
| |                                                                                                                     |  |                          |        |                                   | 
| |                                                                                                                     |  | 2003                     |        | 2004                              |  | 2005   |   | 2003 |        | 2004 |   | 2005  | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       | 
|
| | Outstanding at beginning of year                                                                                    |  |                          | 28,769 |                                   |  | 29,437 |   |      | 31,839 |      | $ | 17.34 |  | $ | 17.88 |  | $ | 19.26 | 
| | Granted                                                                                                             |  |                          | 5,370  |                                   |  | 9,476  |   |      | 6,676  |      | $ | 17.14 |  | $ | 18.26 |  | $ | 22.68 | 
| | Exercised                                                                                                           |  |                          | (3,112 | )                                 |  | (5,316 | ) |      | (6,375 | )    | $ | 4.73  |  | $ | 5.71  |  | $ | 7.75  | 
| | Forfeiture                                                                                                          |  |                          | (1,590 | )                                 |  | (1,758 | ) |      | (1,889 | )    | $ | 31.28 |  | $ | 31.81 |  | $ | 25.80 | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| | Outstanding as of December 31,                                                                                      |  |                          | 29,437 |                                   |  | 31,839 |   |      | 30,251 |      | $ | 17.88 |  | $ | 19.26 |  | $ | 22.03 | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| | Exercisable as of December 31,                                                                                      |  |                          | 17,710 |                                   |  | 18,214 |   |      | 15,922 |      | $ | 15.36 |  | $ | 17.92 |  | $ | 22.65 | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |        |      |   |       |  |   |       |  |   |       | 
| |                                                                                                                    
| | The options
  outstanding as of December 31, 2005, have been separated into ranges of
  exercise price, as follows:
| |                                                                                                                     |  |                          |        |                                   |  |        |   |      |       

| |                 |  |                                                                   |        |                                                                |  |                                    |  |                                                                    |       |                                                                    |  |        |  |  |       | 
| | --------------- |  | ----------------------------------------------------------------- | ------ | -------------------------------------------------------------- |  | ---------------------------------- |  | ------------------------------------------------------------------ | ----- | ------------------------------------------------------------------ |  | ------ |  |  | ----- | 
| | Exercise price  |  | Options 
  outstanding at
  December 31, 
  2005
  (in thousands) |        | Weighted 
  average 
  remaining 
  contractual life
  (years) |  | Weighted 
  average exercise price |  | Options 
  exercisable at 
  December 31, 
  2005
  (in thousands) |       | Weighted 
  average 
  exercise price of 
  exercisable 
  options | 
| |                 |  |                                                                   |        |                                                                |  |                                    |  |                                                                    |       |                                                                    | 
| | $               |  |                                                                   |        |                                                                |  | $                                  |  |                                                                    |       | $                                                                  | 
| |                 |  |                                                                   |        |                                                                |  |                                    |  |                                                                    |       |                                                                    | 
|
| | 1.66 -
  1.66   |  |                                                                   | 5      |                                                                |  | 3.66                               |  |                                                                    | 1.66  |                                                                    |  | 5      |  |  | 1.66  | 
| | 2.99 -
  9.83   |  |                                                                   | 3,734  |                                                                |  | 1.23                               |  |                                                                    | 9.19  |                                                                    |  | 3,555  |  |  | 9.35  | 
| | 10.33
  - 13.00 |  |                                                                   | 2,634  |                                                                |  | 3.45                               |  |                                                                    | 12.98 |                                                                    |  | 1,933  |  |  | 12.97 | 
| | 13.02
  - 17.64 |  |                                                                   | 7,339  |                                                                |  | 3.87                               |  |                                                                    | 16.82 |                                                                    |  | 4,407  |  |  | 16.94 | 
| | 17.68
  - 23.82 |  |                                                                   | 9,199  |                                                                |  | 6.31                               |  |                                                                    | 22.33 |                                                                    |  | 916    |  |  | 22.40 | 
| | 27.00
  - 30.54 |  |                                                                   | 4,262  |                                                                |  | 4.73                               |  |                                                                    | 27.30 |                                                                    |  | 2,116  |  |  | 27.52 | 
| | 31.75
  - 36.72 |  |                                                                   | 175    |                                                                |  | 1.58                               |  |                                                                    | 34.51 |                                                                    |  | 170    |  |  | 34.55 | 
| | 40.09
  - 44.42 |  |                                                                   | 1,823  |                                                                |  | 2.47                               |  |                                                                    | 42.30 |                                                                    |  | 1,745  |  |  | 42.30 | 
| | 44.96
  - 51.21 |  |                                                                   | 438    |                                                                |  | 1.35                               |  |                                                                    | 47.50 |                                                                    |  | 438    |  |  | 47.50 | 
| | 65.58
  - 65.58 |  |                                                                   | 11     |                                                                |  | 1.41                               |  |                                                                    | 65.58 |                                                                    |  | 11     |  |  | 65.58 | 
| | 68.42
  - 70.02 |  |                                                                   | 281    |                                                                |  | 1.73                               |  |                                                                    | 69.11 |                                                                    |  | 280    |  |  | 69.11 | 
| | 70.19
  - 75.08 |  |                                                                   | 73     |                                                                |  | 1.54                               |  |                                                                    | 71.48 |                                                                    |  | 72     |  |  | 71.44 | 
| | 79.79
  - 86.54 |  |                                                                   | 277    |                                                                |  | 2.33                               |  |                                                                    | 84.74 |                                                                    |  | 274    |  |  | 84.72 | 
| |                 |  |                                                                   |        |                                                                |  |                                    |  |                                                                    |       |                                                                    |  |        |  |  |       | 
| | 1.66 -
  86.54  |  |                                                                   | 30,251 |                                                                |  | 4.20                               |  |                                                                    | 22.03 |                                                                    |  | 15,922 |  |  | 22.65 | 
| |                 |  |                                                                   |        |                                                                |  |                                    |  |                                                                    |       |                                                                    |  |        |  |  |       | 

F - 32

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

|            |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | ---------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | SHAREHOLDERS EQUITY (Cont.)
|            |                             
|            |                              | The weighted
  average fair values at grant date of options granted for the years ended
  December 31, 2003, 2004 and 2005 with an exercise price equal to the market
  value at the date of grant were $ 5.44, $ 9.50 and $ 11.05, respectively. The
  weighted average fair values at grant date of options assumed in the Zone
  Labs acquisition with an exercise price lower than the market value at the
  date of grant was $ 17.89.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | e.                           | In October
  2003, the Company announced that its Board of Directors has authorized the
  repurchase of up to $ 200,000 of its outstanding Ordinary shares in the open
  market or through privately negotiated transactions. In October 2004, after
  the Company had completed the repurchase of $ 200,000 of its Ordinary shares,
  the Company announced that its Board of Directors had authorized additional
  repurchases of up to $ 200,000 of its outstanding Ordinary shares in the open
  market or through privately negotiated transactions. In July 2005, after the
  Company had completed the repurchase of $ 400,000 of its Ordinary shares, the
  Company announced that its Board of Directors had authorized additional
  repurchases of up to $ 200,000 for a total of $ 600,000. Under the repurchase
  programs, 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 programs have no time limit
  and may be suspended from time to time or discontinued. Under the above
  programs, the Company purchased during 2004 and 2005 approximately 12 and
  10.6 million shares, respectively, at a total cost of $ 244,586 and $ 236,929,
  respectively. The average purchase price was $ 20.40 and $ 22.38, respectively.
|            |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                              | As of
  December 31, 2005, the Company reissued 5,675,259 of its purchased Ordinary
  shares in consideration for the exercise of stock options by employees and
  for shares issued under the ESPP. Such purchases of Ordinary shares are accounted
  for as treasury stock and result in a reduction of shareholders equity. When
  treasury stock is reissued, the Company accounts for the re-issuance in
  accordance with Accounting Principles Board No. 6, Status of Accounting
  Research Bulletins (APB No. 6) and charges the excess of the purchase cost
  over the re-issuance price (loss) to retained earnings. The purchase cost is
  calculated based on the specific identification method. In case the purchase
  cost is lower than the re-issuance price, the Company credits the difference
  to additional paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 33

---

---



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

|            |                                                                                                       
|----------- | ------------------------------------------------------------------------------------------------------
|NOTE 10:   | EARNINGS PER SHARE                                                                                    
|            |                                                                                                       
|            | The
  following table sets forth the computation of historical basic and diluted
  earnings per share:

| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | --------------------------------------------------------------------- |  | ------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
| |                                                                       |  | Year ended
  December 31, |        
| |                                                                       |  |                           |        
| |                                                                       |  | 2003                      |         | 2004 |   | 2005    | 
| |                                                                       |  |                           |         |      |   |         | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Net
  income                                                          |  | $                         | 243,879 |      | $ | 248,393 |  | $ | 319,684 | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Weighted
  average Ordinary shares outstanding (in thousands)         |  |                           | 247,691 |      |   | 251,244 |  |   | 245,520 | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Dilutive
  effect:                                                    |  |                           |         |      |   |         |  |   |         | 
| | Employee
  stock options (in thousands)                               |  |                           | 7,392   |      |   | 9,364   |  |   | 6,227   | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Diluted weighted average Ordinary shares
  outstanding (in thousands) |  |                           | 255,083 |      |   | 260,608 |  |   | 251,747 | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Basic
  earnings per Ordinary share                                   |  | $                         | 0.98    |      | $ | 0.99    |  | $ | 1.30    | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 
| | Diluted
  earnings per Ordinary share                                 |  | $                         | 0.96    |      | $ | 0.95    |  | $ | 1.27    | 
| |                                                                       |  |                           |         |      |   |         |  |   |         | 

|            |                                                               |                                                                                                                                                                                                                                                                           |                                                    
|----------- | ------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------
|NOTE 11:   | GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA
|            |                                                              
|            | a.                                                            | Summary
  information about geographical areas:                                                                                                                                                                                                                          
|            |                                                               |                                                                                                                                                                                                                                                                          
|            |                                                               | 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 Companys channel partners which are considered as end
  customers.
|            |                                                               |                                                                                                                                                                                                                                                                          
|            |                                                               | The
  following present total revenues for the years ended December 31, 2003, 2004
  and 2005 and long-lived assets as of December 31,
  2004 and 2005:                                                                                                                  
|            |                                                               |                                                                                                                                                                                                                                                                          
|            |                                                               | 1.                                                                                                                                                                                                                                                                        | Revenues
  based on the channel partners location:

| |                                |  |                           |         |      |   |         |  |   |         | 
| | ------------------------------ |  | ------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
| |                                |  | Year ended
  December 31, |        
| |                                |  |                           |        
| |                                |  | 2003                      |         | 2004 |   | 2005    | 
| |                                |  |                           |         |      |   |         | 
| |                                |  |                           |         |      |   |         |  |   |         | 
| | Americas                       |  | $                         | 185,186 |      | $ | 226,125 |  | $ | 269,432 | 
| | Europe, Middle East and Africa |  |                           | 175,887 |      |   | 213,411 |  |   | 236,605 | 
| | Japan                          |  |                           | 39,622  |      |   | 37,938  |  |   | 34,334  | 
| | Asia Pacific                   |  |                           | 31,877  |      |   | 37,886  |  |   | 38,979  | 
| |                                |  |                           |         |      |   |         |  |   |         | 
| |                                |  |                           |         |      |   |         |  |   |         | 
| |                                |  | $                         | 432,572 |      | $ | 515,360 |  | $ | 579,350 | 
| |                                |  |                           |         |      |   |         |  |   |         | 

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | It is
  impracticable to provide revenues by product lines for the years ended
  December 31, 2003, 2004 and 2005.

F - 34

---

---



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

|            |                                                                       |    |                     
|----------- | --------------------------------------------------------------------- | -- | --------------------
|NOTE 11:   | GEOGRAPHIC INFORMATION AND SELECTED STATEMENTS OF INCOME DATA (Cont.)
|            |                                                                      
|            |                                                                       | 2. | Long-lived
  assets:

| |          |  |               |         |      |   |         | 
| | -------- |  | ------------- | ------- | ---- | - | ------- | 
| |          |  | December
  31 |        
| |          |  |               |        
| |          |  | 2004          |         | 2005 |  
| |          |  |               |         |      |  
| |          |  |               |         |      |   |         | 
| | Americas |  | $             | 205,024 |      | $ | 197,477 | 
| | Israel   |  |               | 4,037   |      |   | 4,173   | 
| | Other    |  |               | 476     |      |   | 525     | 
| |          |  |               |         |      |   |         | 
| |          |  |               |         |      |   |         | 
| |          |  | $             | 209,537 |      | $ | 202,175 | 
| |          |  |               |         |      |   |         | 

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

| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| | ------------------------------------------------------------------------------ |  | ------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
| |                                                                                |  | Year ended
  December 31, |       
| |                                                                                |  |                           |       
| |                                                                                |  | 2003                      |        | 2004 |   | 2005   | 
| |                                                                                |  |                           |        |      |   |        | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| | Financial
  income:                                                            |  |                           |        |      |   |        |  |   |        | 
| | Interest income                                                                |  | $                         | 60,695 |      | $ | 64,027 |  | $ | 65,884 | 
| | Foreign
  currency remeasurement gain and others, net                          |  |                           | 1,006  |      |   | -      |  |   | 412    | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| |                                                                                |  |                           | 61,701 |      |   | 64,027 |  |   | 66,296 | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| | Financial expense:                                                             |  |                           |        |      |   |        |  |   |        | 
| | Amortization
  of marketable securities premium and accretion of discount, net |  |                           | 17,652 |      |   | 17,528 |  |   | 11,066 | 
| | Foreign
  currency remeasurement loss, net                                     |  |                           | -      |      |   | 531    |  |   | -      | 
| | Others                                                                         |  |                           | 543    |      |   | 1,191  |  |   | 1,053  | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| |                                                                                |  |                           | 18,195 |      |   | 19,250 |  |   | 12,119 | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 
| |                                                                                |  | $                         | 43,506 |      | $ | 44,777 |  | $ | 54,177 | 
| |                                                                                |  |                           |        |      |   |        |  |   |        | 

|            |                                                                                                                                                                                                                                         
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12:   | SUBSEQUESNT EVENT  Unaudited                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                         
|            | In February
  2006, the CFIUS notified the Company that the 30-day review provided by the
  Exon-Florio legislation has expired and the pending acquisition moved into
  the investigative stage for an additional 45-day investigation.

F - 35

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---



# 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 ShwedChief Executive Officer and Chairman of the Board
| |  | --------------------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Eyal Desheh
Eyal DeshehExecutive Vice President and Chief Financial Officer
| |  | -------------------------------------------------------------------------------------------------

Date: March 13, 2006



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