As
  filed with the Securities and Exchange Commission on October 4, 2005



UNITED
  STATES SECURITIES AND EXCHANGE COMMISSION

Washington,
  D.C. 20549



|Form
        20-F
|-----------------



| | REGISTRATION STATEMENT
      PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                                      
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                           
| | ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934
      For
        the fiscal year ended June 30, 2005
| |                                                                                                                                                           
| | TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934
      For
        the transition period from     
| | to                                                                                                                                                        





Commission
  File Number: 000-29144

|
|

ILOG
  S.A.(Exact name of Registrant as specified in its charter)

|Not
        Applicable                                  | The
        Republic of France                         
|------------------------------------------------------- | -------------------------------------------------------
|(Translation
        of Registrants Name into English) | (Jurisdiction
        of incorporation or organization)

9,
  rue de Verdun, 94253 Gentilly, France

(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:

|Title
        of each class:                                                                             | Name
        of each exchange on which registered:
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------------
|American
        Depositary Shares, each representing one Ordinary Share, par value €1
        per share | NASDAQ
        National Market                    
|Ordinary
        Shares, par value €1 per share                                                          | NASDAQ
        National Market*                   



*

The
  Ordinary Shares are not traded on the NASDAQ National Market but are registered
  only in connection with the registration of American Depositary Shares pursuant
  to the requirements of the Securities and Exchange Commission.

|
|

Securities for which
  there is a reporting obligation pursuant to Section 15 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 this Annual Report:
  18,005,407 Ordinary Shares of €1 nominal value, including Ordinary Shares
  represented by 3,175,627 American Depositary Shares (as evidenced by American
  Depositary Receipts), each corresponding to one Ordinary Share.

Indicate
  by check mark whether the registrant (1) has filed all reports 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 required to file such
  reports), and (2) has been subject to such filing requirements for the past
  90 days.

Yes  No

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

Item 17  
  Item 18











---





CAUTIONARY
  STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Many
  of the statements included in this Annual Report, as well as oral statements
  that may be made by us or by officers, directors or employees acting on behalf
  of us, constitute or are based on forward looking statements within the meaning
  of the U.S. Private Securities Litigation Reform Act of 1995, specifically Section
  27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S.
  Securities Exchange Act of 1934, as amended.  All statements other than
  statements of historical facts, including, among others, statements regarding
  the implementation of the Companys business strategy, trends in the software
  industry, the Companys financial outlook, liquidity and working capital,
  the creation of co-selling and co-marketing relationships and strategic alliances,
  the increased penetration of the Companys existing customers, the sale
  of the Companys service packages, the market risks associated with exchange
  rates, changes in the balance of the classes of the Companys business
  and other statements relating to the Companys plans, objectives, expectations,
  intentions, future business development and economic performance are or may
  be forward looking. In addition to statements that are forward-looking by reason
  of context, other forward-looking statements generally may be identified by
  the use of words such as may, will, should,
  expect, estimate, anticipate, intend,
  plan, believe, continue, outlook,
  judgment, predict or other similar expressions, although
  the absence of such words does not necessarily mean that a statement is not
  forward-looking.

These
  forward-looking statements involve a number of known and unknown risks, uncertainties
  and other factors that could cause the Companys actual results and outcomes
  to be materially different from historical results or from any future results
  expressed or implied by such forward-looking statements.  Factors that
  might cause such a difference include, but are not limited to, those discussed
  in the sections entitled Item 3. Key InformationRisk Factors,
  Item 4. Information on the Company and Item 5. Operating and
  Financial Review and Prospects, as well as quarterly fluctuations in our
  operating results and the price of our Shares or ADSs, competition in our industry,
  the extended length of our sales cycle which impacts our ability to forecast
  revenues, the unpredictable demand for our consulting services, factors adversely
  affecting any of our three product lines, our dependence on certain major independent
  software vendors, our investments in vertical markets, the increasing number
  of fixed price consulting engagements, decreased investment in our sales and
  marketing forces, changing market requirements, our ability to provide professional
  services activities that satisfy customer expectations, errors in our software
  products, the loss of key personnel, logistical difficulties, cultural differences,
  product localization costs, import and tariff restrictions, adverse foreign
  tax consequences and fluctuations in currencies resulting from our global operations,
  the impact of currency fluctuations on our profitability as a majority of our
  revenues are denominated in U.S, dollars, and a majority of our expenses are
  incurred in euros, changes in tax laws or an adverse tax audit, our significant
  dependence on our proprietary technology, the impact of intellectual property
  infringement disputes, the impact of dilutive share issuances, or the incurrence
  of debt and contingent liabilities and write-offs resulting from acquisitions,
  the limitations imposed by French law that could result in a delay or prevent
  us from being acquired, changes in accounting principles that could affect our
  operating profits and reported results, the risks associated with holding ADSs,
  and other matters not yet known to us or not currently considered material by
  us.  All written and oral forward-looking statements attributable to us,
  or persons acting on our behalf, are qualified in their entirety by these cautionary
  statements.

Readers
  are cautioned not to place undue reliance on these forward-looking statements,
  which reflect managements analysis only as of the date hereof.  Unless
  required by law, ILOG undertakes no obligation to revise these forward-looking
  statements to reflect new information or events, circumstances, changes in our
  expectations or otherwise that arise after the date of this Annual Report on
  Form 20-F. Readers should carefully review the events and other matters described
  in other documents we file or submit from time to time with the United States
  Securities and Exchange Commission (the SEC), including reports
  on Form 6-K submitted by us.



2
  | Form 20-F 2005  ILOG



---



PRESENTATION
  OF INFORMATION

Unless
  the context otherwise requires, references herein to we, us,
  our, the Company or to ILOG are to ILOG S.A.
  and its consolidated subsidiaries.

Our
  name together with our logo are registered as trademarks in France, the United
  States and a number of other countries. All references herein to France
  are to the Republic of France. All references to the United States
  or the U.S. are to the United States of America and all references
  to dollars and $ are to the currency of the United States.
  All references to “euro” or “€” are to the common
  currency adopted by the twelve member states of the European Monetary Union.
  We publish our financial statements in U.S. dollars. Except as otherwise stated
  herein, all monetary amounts in this Annual Report on Form 20-F are presented
  in dollars.

The
  Consolidated Financial Statements for the fiscal years ended June 30, 2005,
  2004 and 2003 included elsewhere in this Annual Report on Form 20-F are referred
  to herein as the Consolidated Financial Statements. References to
  fiscal year 2005, fiscal year 2004 and fiscal year 2003 in this Annual Report
  on Form 20-F mean the fiscal years ending respectively on June 30, 2005, 2004
  and 2003, unless the context otherwise requires.



TRADEMARKS

The
  following trademarks are trademarks of ILOG in France, in the U.S., and other
  countries:

|ILOG                                  | CPLEX                                           
|------------------------------------- | ------------------------------------------------
|ILOG
        Optimization Suite       | ILOG
        CPLEX Suite                        
|ILOG
        Solver                   | ILOG
        Scheduler                          
|ILOG
        Planner                  | ILOG
        Dispatcher                         
|ILOG
        DB Link                  | ILOG
        InForm                             
|ILOG
        Vision                   | ILOG
        Views                              
|ILOG
        JViews                   | ILOG
        JTGO                               
|ILOG
        TGO                      | ILOG
        Rules                              
|ILOG
        JRules                   | ILOG
        Server                             
|ILOG
        Views Maps               | ILOG
        OPL Studio                         
|ILOG
        Configurator             | ILOG
        TGF                                
|ILOG
        AMPL                     | Powered
        by ILOG                         
|ILOG
        JSolver                  | ILOG
        Concert Technology                 
|ILOG
        JConfigurator            | Think
        net                               
|ILOG
        Business Rule Suite      | Changing
        the rules of business          
|ILOG
        FabPowerOps (FPO)        | ILOG
        PlantPowerOps (PPO)                
|ILOG
        Transport PowerOps (TPO) | ILOG
        Optimization Decision Manager (ODM)
|ILOG
        Rules for .NET           | ILOG
        Business Rule Suite                

This
  Annual Report on Form 20-F may also contain tradenames or trademarks of other
  companies.



Form
  20-F 2005  ILOG | 3



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AMERICAN
  DEPOSITARY SHARES

Pursuant
  to a program which we sponsor, our Ordinary Shares, or the Shares,
  are traded in the United States in the form of American Depositary Shares, or
  ADSs. Each ADS represents one Share placed on deposit with JP Morgan Chase Bank,
  as depositary (the Depositary), and is issued and delivered by the
  Depositary through its principal office in New York City at 60 Wall Street,
  (36th Floor), New York, New York 10260. Shares may be deposited with the Paris
  office of BNP Paribas, as custodian (the Custodian), or any
  successor or successors to such Custodian under the terms of the Deposit Agreement,
  dated as of February 13, 1997 and amended August 1998, between us, the Depositary
  and the holders of ADSs (the Deposit Agreement). The Depositary
  provides a variety of services to registered holders of American Depositary
  Receipts, as more fully set forth in the form of the Deposit Agreement which
  was filed as an exhibit to our Registration Statement on Form F-6 effective
  with the SEC on February 13, 1997 and amended August 1998.





4
  | Form 20-F 2005  ILOG



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TABLE
  OF CONTENT

|PART I         
|---------------
|Item
      1.  
|Item
      2.  
|Item
      3.  
|A.             
|B.             
|C.             
|D.             
|Item
      4.  
|A.             
|B.             
|C.             
|D.             
|Item
      5.  
|A.             
|B.             
|C.             
|D.             
|E.             
|F.             
|Item
      6.  
|A.             
|B.             
|C.             
|D.             
|E.             
|               
|PART II        
|Item
      13. 
|Item
      14. 
|Item
      15..
|Item
      16. 
|A.             
|PART III       
|Item
      17. 
|Item
      18. 
|               











Form
  20-F 2005  ILOG | 5



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PART
  I

Item
  1.

Identity
  of Directors, Senior Management and Advisers

Not
  Applicable.

Item
  2.

Offer
  Statistics and Expected Timetable

Not
  Applicable.

Item
  3.

Key
  Information

A.

Selected
  Financial Data

The
  following selected financial data should be read in conjunction with Item
  5. Operating and Financial Review and Prospects, the Consolidated Financial
  Statements and related Notes thereto and the other financial information appearing
  elsewhere in this Annual Report on Form 20-F. The income statement data set
  forth below for each of the years ended June 30, 2005, 2004 and 2003 and
  the balance sheet data at June 30, 2005 and 2004 have been derived from our
  Consolidated Financial Statements included elsewhere herein, which have been
  prepared in accordance with U.S. generally accepted accounting principles (GAAP)
  and audited by Ernst & Young Audit, independent registered public accounting
  firm with the Public Company Accounting Oversight Board (United States) and
  are included herein. The income statement data set forth below for each of the
  years ended June 30, 2002 and 2001 and the balance sheet data at June 30, 2003,
  2002 and 2001 are derived from audited financial statements not included herein.

The
  Company, a French corporation publicly listed both in France and in the United
  States of America, prepares its financial statements in euros in accordance
  with French GAAP for the purpose of its listing on Euronext and in accordance
  with requirements of the Autorité des Marchés Financiers (the
  AMF), and in U.S. dollars in accordance with U.S. GAAP for the purpose
  of its listing on the NASDAQ and in accordance with the requirements of the
  SEC, which are included herein. As an EU-listed company, the Company will be
  required to prepare its financial statements in accordance with International
  Financial Reporting Standards (IFRS) commencing in the fiscal year
  beginning July 1, 2005.



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  | Form 20-F 2005  ILOG



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|                                                                         |  | Year
        Ended June 30,                  
|------------------------------------------------------------------------ |  | ---------------------------------------------
|                                                                         |  | 2005                                         
|Consolidated
        Income Statements:                                  |  | (in
        thousands, except per share data)
|Revenues:                                                                |  |                                              
|Licenses
        fees                                                    |  | $67,707                                      
|Maintenance.                                                             |  | 34,158                                       
|Professional
        Services                                            |  | 23,438                                       
|Total
        revenues                                                   |  | 125,303                                      
|Cost
        of revenues:                                                |  |                                              
|Licenses
        fees.                                                   |  | 1,031                                        
|Maintenance.                                                             |  | 3,870                                        
|Professional
        Services                                            |  | 19,782                                       
|Total
        cost of revenues                                           |  | 24,683                                       
|Gross
        profit                                                     |  | 100,620                                      
|Operating
        expenses:                                              |  |                                              
|Marketing
        and selling                                            |  | 53,364                                       
|Research
        and development                                         |  | 27,224                                       
|General
        and administrative                                       |  | 13,561                                       
|Total
        operating expenses                                         |  | 94,149                                       
|Income
        from operations                                           |  | 6,471                                        
|Net
        interest income and other (1)                                |  | 906                                          
|Income
        taxes                                                     |  | (650)                                        
|Net
        income                                                       |  | $6,727                                       
|Net
        income per share                                             |  |                                              
|-basic                                                                   |  | $0.38                                        
|-diluted                                                                 |  | $0.36                                        
|Shares
        and share equivalents used in per share calculations (2): |  |                                              
|-basic                                                                   |  | 17,815                                       
|-diluted                                                                 |  | 18,722                                       



(1)

Net
  interest income and other includes interest income and expenses, and other,
  net.

(2)

See
  Note 1 of the Consolidated Financial Statements for an explanation of the determination
  of the number of Shares and Share equivalents used in per share calculations.

|                                                          |  | As
        of June 30,
|--------------------------------------------------------- |  | ----------------------
|                                                          |  | 2005                  
|                                                          |  | (in
        thousands)
|Consolidated
        Balance Sheet Data :                 |  |                       
|Cash,
        cash equivalents and short term investments |  | $61,730               
|Net
        working capital (1)                           |  | 50,942                
|Total
        assets                                      |  | 105,811               
|Other
        long term obligations                       |  | 361                   
|Shareholders'
        equity.                             |  | $58,400               



(1)

Net
  working capital consists of total current assets less total current liabilities.



B.

Capitalization
  and Indebtedness

Not
  Applicable.

C.

Reasons
  for the Offer and Use of Proceeds

Not
  Applicable.



Form
  20-F 2005  ILOG | 7



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D.

Risk
  Factors

The
  following risk factors, together with the other information and ILOGs
  Consolidated Financial Statements and the related Notes thereto included elsewhere
  herein, should be carefully considered in evaluating ILOG and its business before
  making an investment decision with respect to ILOGs Shares and ADSs.

Certain
  risk factors that affect the software industry generally and technology companies
  specifically also apply to ILOG. Such factors include:

·

increased
  competition for our products and services, including aggressive pricing strategies
  by competitors,

·

deferred
  purchases due to reduced capital investment,

·

a
  change in technology market conditions which are typified by rapid and unpredictable
  developments,

·

the
  effectiveness of our marketing and sales activities,

·

business
  disruptions due to fires, earthquakes (our offices in France and in western
  California are located in potential earthquake and/or flood zones),

·

theft
  of our intellectual property or confidential information, and

·

our
  acquisition strategy.

Any
  one or more of these circumstances could have an adverse impact on our ability
  to achieve financial results, business, operating revenues, and our financial
  condition. There can be no assurance that any of the risks described in this
  Annual Report on Form 20-F will not result in problems that materially affect
  any financial aspect of our business or the price of our Shares and ADSs. Additional
  risks and uncertainties of which we are unaware or that we currently deem immaterial
  also may become important factors that may adversely affect our Company.

1.

Risks
  concerning our ability to achieve financial results

Our
  quarterly operating results have fluctuated significantly as have the price
  of our Shares and ADSs and they may continue to do so in the future.

Factors
  causing such fluctuations include:

·

varying
  demand for our products and services,

·

the
  size, timing and structure of significant licenses sales and/or royalty payments
  by customers,

·

cost
  overruns on fixed price consulting contracts,

·

the
  growing complexity of the customer decision process as our average license sales
  are increasing in size,

·

the
  size of the consulting services staff, which may or may not track customer demand
  for our services,

·

our
  periodic reliance on third party consultants to meet temporary increases in
  demand for our services, which results in lower service margins,

·

seasonality,
  as a significant proportion of our sales come from Europe where we generally
  realize lower revenues in the quarter ending September 30th than in the immediately
  preceding quarter due primarily to reduced economic activity in the summer months,

·

general
  economic conditions and customer spending on software and information technology
  products,

·

analyst
  expectations and analyst reports and recommendations,

·

stock
  market performance, particularly in the high-tech sector,

·

the
  timing of product announcements, and

·

a
  change in the competitive landscape due to a competitors increased market
  share or introduction of a well regarded product.



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  | Form 20-F 2005  ILOG



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Revenues
  from license fees and/or royalties in any quarter are substantially dependent
  on orders booked and shipped in that quarter and on sales by the Companys
  Independent Software Vendors (ISVs), distributors and resellers.

Our
  expense levels are relatively fixed. Consequently, if revenue levels decline
  or are below expectations, expense levels could be disproportionately high as
  a percentage of total revenues, which would have an adverse impact on our results
  of operations and could result in losses.  As a result, period-to-period
  comparisons of operating results are not necessarily meaningful and should not
  be relied upon to predict future performance.  In addition, if our operating
  results are below the expectations of investors and/or analysts, the price of
  our Shares and ADSs may fall.

The
  industry in which we operate is characterized by intense competition.

The
  markets for our products and services are intensely competitive and we expect
  product and service offerings and pricing competition to increase. Our present
  direct competitors include a number of private and public companies such as
  Computer Associates, Corticon Technologies, Cosytech, Dash Associates, Fair
  Isaac, Haley, Microsoft, Pegasystems, SL Corporation and Tom Sawyer. Some
  of our competitors have longer operating histories, significantly greater financial,
  technical and marketing resources, greater name recognition, broader product
  offerings and a larger installed base of customers than we do.  In addition,
  some of our competitors have well-established relationships with our current
  and potential customers. As a result, they may be able to respond more quickly
  to new or emerging technologies and changes in customer requirements. They may
  also be able to devote greater resources than we can to develop, promote and
  sell their products.

We
  are also facing increased competition from low cost companies in
  India and other countries, and we compete with companies that provide packaged
  software with respect to specific applications. In addition, virtually all of
  our customers have significant investments in their existing solutions and have
  the resources necessary to enhance existing products and to develop future products.
  As a result, some of these customers could choose to develop their own technical
  solutions instead of purchasing from us.

Barriers
  to entry in our business generally are low and the software industry is currently
  undergoing consolidation as software companies seek to offer more extensive
  suites and broader arrays of software products, as well as integrated software
  and hardware solutions.  This consolidation and increased competition could
  result in fewer customer orders, price reductions, reduced transaction size,
  reduced gross margins and loss of market share, any of which could have a material
  adverse effect on our business, operating results and financial condition.  See
  Item 4.B. Competition.

The
  extended length of our sales cycle could result in substantial fluctuations
  in operating results and as a result we may not be able to accurately forecast
  our revenues.

Our
  customers are often cautious in making decisions to acquire our products because
  purchasing our products may involve shifts by the customer to a new software
  platform or a change in the customers operational procedures.  Delays
  in completing sales can arise while customers complete their internal procedures
  to approve purchase expenditures and test and accept our products.  Our
  sales cycle is generally three to six months or more and varies substantially
  from customer to customer.  The long sales cycle for our products may cause
  license revenue and operating results to vary significantly from period to period.
   Consequently, we face difficulty predicting the quarter in which sales
  to expected customers will occur.  In addition, we have been constrained
  in the past, and may be constrained in the future, in our ability to provide
  consulting resources, which may cause sales cycles to be lengthened or result
  in the loss of sales.

We
  have attempted to increase our consulting services revenue, which requires us
  to hire more consultants, and increases our overhead, which may not be offset
  by actual consulting service revenues, particularly during slow periods, which
  are unpredictable.

In
  fiscal year 2005, we significantly increased our consulting services activity.
   As a result, the demand for our services temporarily exceeded our internal
  capacity to staff the engagements under contract, necessitating the hiring of
  additional third party consultants to fulfill the consulting engagements.  Third
  party contractors are more expensive than our staff consultants, and therefore
  the margins for the consulting services work is decreased for those engagements
  in which we are required to use outside contractors. Moreover, the use of third
  party consultants also increases the



Form
  20-F 2005  ILOG | 9



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complexity
  surrounding billing for consulting services which resulted in our having to
  restate in January 2005 our quarterly earnings for the quarter ended September
  2004.

The
  number of consulting engagements that we have at any given moment in time fluctuates
  and is unpredictable.  As a result, we cannot be assured that we will have
  sufficient work to keep our consultants engaged on fee-based projects on a full
  time basis, thereby potentially increasing our overhead without any corresponding
  increase in revenues, which could adversely impact our operating results and
  income.

We
  generate our revenues from three product lines. Any factor adversely affecting
  any of these product families could have a material adverse effect on us.

ILOGs
  business rules, optimization and visualization product lines accounted for approximately
  40%, 35% and 25% of our license and maintenance revenues in the 2005 fiscal
  year.  We expect that revenues from each of these product lines will continue
  to represent a substantial portion of our total license and maintenance fees
  for the foreseeable future. As a result, any factor adversely affecting one
  or more of these product lines could adversely affect our business, operating
  results and financial condition.

We
  are dependent upon certain major independent software vendors, or ISVs, for
  a significant part of our revenues.

In
  fiscal year 2005, 24% of our revenues were generated from ISVs which embedded
  our software components in their applications, which they in turn sell to their
  customers.  In the 2005 fiscal year, our largest customer, SAP A.G., an
  ISV, provided 4% of our revenues, and our next nine largest customers, of which
  four were ISVs, accounted for a further 11% of our revenues. Should the ISVs
  individually or collectively decide to replace our components with their own
  or a competitors technology for any reason, discontinue offering the application
  embedding our components and/or experience a business downturn, our business,
  operating results and financial condition will be adversely affected. See Item
  5.A. Revenues by Geography and Note 14 to Consolidated Financial
  Statements.

We
  have invested in certain vertical markets by developing industry specific products
  which may or may not yield any increase in profits, particularly due to the
  high cost of implementation which we provide at reduced costs as an inducement
  to the sale of these products.

In
  fiscal year 2005, we worked on developing several new optimization products
  targeted to specific industries.  Investments in new products and services
  are inherently speculative.  The revenues we have received from these emerging
  products have not to date and may not in the future cover the associated development
  costs, which are still ongoing. Commercial success depends on many factors,
  including our ability to execute our sales strategy with respect to these products,
  the commercial acceptance of these products by customers and the general economic
  conditions in these industries, particularly the semiconductor chip manufacturing,
  transportation and process manufacturing industries.  Our current strategy
  involves absorbing some of the implementation costs as an inducement to the
  sale of these products.  We cannot be assured that these products will
  be commercially released, or will achieve profitability.

We
  have undertaken to perform more consulting services work on a fixed price basis,
  which presents the risk that the work product may not be accepted when finally
  delivered and therefore we may not be paid for our time or the cost of the engagement
  may be more than we receive in revenues.

Customer
  demand for fixed price and/or turnkey consulting engagements is increasing and
  we are accepting more consulting work on a fixed price basis.  Typically,
  we perform the work for fixed price consulting services at our expense, and
  our payment for the work performed is contingent on the customers acceptance
  of the work product that we deliver at certain intervals, called milestones,
  or at the end of the engagement.  If the customer does not accept all or
  part of the work product that we deliver, we may not receive some portion, or
  potentially any, of the anticipated revenues to offset the costs incurred in
  performing the engagement, which could have an adverse impact on our results
  of operations and financial condition.

In
  addition, the risks associated with these engagements include the possibility
  that we could poorly manage the engagement and not conduct the work in the most
  cost effective manner. Further, because the fee that is charged for



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these
  engagements is determined at the outset, we could underestimate the amount of
  work that will be required and the engagement could actually result in negative
  income. Moreover, we could lose profitable opportunities because we are required
  to commit significant resources to fixed price consulting engagements which
  may turn out to be unprofitable.

2.

Risks
  that could adversely affect our business operations

Our
  investment in our sales and marketing forces is not expected to increase.

We
  have made a significant investment in recent years in the expansion of our sales
  and marketing force, across all regions, which we do not plan to grow significantly
  in the coming year. There can be no assurance that our sales and marketing productivity
  will continue to improve as it did in fiscal year 2005 when revenue increased
  by 22%, while sales and marketing expenses only increased by 9%.

Our
  ability to acquire, develop and market new products and product enhancements
  needs to be timely and directed to changing market and technological requirements.

We
  operate in a highly competitive industry characterized by rapid technological
  change, evolving industry standards, changes in customer requirements and frequent
  new product introductions and enhancements.  Accordingly, our future success
  will depend in large part on our ability to improve our current technologies
  and to acquire, develop and market new products and product enhancements that
  address changing market and technological requirements on a timely basis.  The
  development of software products is a complex and time-consuming process.  New
  products and enhancements to existing products can require long development
  and testing periods.  Furthermore, investments in new technology are inherently
  speculative.  Commercial success depends on many factors, including innovativeness,
  our ability to execute our sales strategy with respect to these products, the
  commercial acceptance of these products by customers and general economic conditions
  in our customers industries.

There
  can be no assurance that we will be successful in acquiring, developing and
  marketing new products or product enhancements, that we will not experience
  difficulties that delay or prevent the successful acquisition, development,
  introduction or marketing of such products or enhancements or that any new products
  or product enhancements will adequately address market and technological requirements
  and achieve market acceptance. As is customary in the software industry, we
  have in the past experienced delays in the introduction of new products and
  features, and may experience such delays in the future.  As a result, revenue
  from new product and service investments may not be achieved for a number of
  years, if at all.  Moreover, new products and services may not be profitable
  and even if they are profitable, operating margins for new products and services
  may not be as high as the margins we have experienced historically.  If
  we are unable, for technological or other reasons, to integrate acquired products,
  develop new products or enhancements of existing products in a timely manner
  in response to changing market conditions or customer requirements, the Companys
  business, operating results and financial condition would be materially adversely
  affected.

Our
  professional services activities can sometimes fall below customer expectations.

In
  fiscal year 2005, 19% of our revenues were directly provided by our consulting
  services which are designed to facilitate customer adoption of our products,
  and accelerate their deployment, so that further license and maintenance revenues
  can be generated for us. If our professional services fail to meet or satisfy
  customer expectations, our revenue streams could be reduced and we may be required
  to reimburse customers for license and service fees paid. Similarly, substantially
  all of our consulting revenue is derived from implementation and maintenance
  of software licensed by new customers and the development of applications by
  our customers using our software.  As a result, a decline in the demand
  for our software would result in a decline in the demand for our consulting
  services.



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Errors
  in our software products could result in warranty or product liability claims
  against us.

The
  software products we offer are inherently complex. Software products frequently
  contain undetected errors or failures, especially when first introduced or when
  new versions or enhancements are released. Despite our preliminary testing and
  use by current and potential customers, errors may not be detected in our products
  and product upgrades which may require us to refund license and maintenance
  fees paid or to pay damages. Persistent or pervasive problems with undetected
  errors or failures could negatively affect our reputation in the industry.

Our
  license agreements typically contain provisions designed to limit our exposure
  to potential product liability and other claims due to unforeseen or undetected
  errors. It is possible, however, that the limitation of liability provisions
  contained in our license agreements, especially unsigned shrink-wrap
  licenses, may not be effective under the laws of certain jurisdictions.  A
  product liability claim, whether or not successful, could be time-consuming
  and costly and thus could have a material adverse affect on our business, results
  of operations or financial position.  In addition, we sometimes grant longer
  than normal warranty periods or provide additional non-standard warranties.
  We currently have limited insurance against product liability risks or errors
  and omissions coverage, and there can be no assurance that the current levels
  of insurance coverage are adequate or that additional insurance will be available
  to us on commercially reasonable terms or at all.

The
  loss of services of any key personnel.

Our
  future success will depend in significant part upon the continued service of
  our key technical, sales and senior management personnel, including our Chairman
  and Chief Executive Officer, known in France as the Président
  Directeur Général, Pierre Haren. We are also particularly
  dependent upon our technical personnel with expertise in object oriented technology,
  math programming and artificial intelligence technology.

Our
  future success will depend on our ability to train, motivate and retain highly
  qualified technical, sales and managerial personnel, and there can be no assurance
  that we will be able to do so. Competition for such personnel is intense, especially
  for technical personnel of the quality of our software architects and scientists.

As
  a result of our global operations, we are exposed to numerous risks, including
  logistical difficulties, cultural differences, product localization costs, import
  and tariff restrictions, adverse foreign tax consequences and fluctuations in
  currencies.

Our
  engineering and research and development operations are located in France, except
  for the CPLEX products which are developed in Incline Village, Nevada and Mountain
  View, California. Our sales and marketing operations are located on three continents.
  These varied locations and the inter-related activities of these groups have
  in the past led, and in the future could lead to logistical and communication
  difficulties.

Further,
  our global operations may be directly affected by adverse economic, health and
  political conditions in the countries where we do business. Approximately 50%,
  40% and 10% of our revenues in fiscal year 2005 were from North America, Europe
  and Asia, respectively.

Worldwide
  operations are subject to a number of risks, including:

·

the
  costs of localizing products for different countries,

·

longer
  accounts receivable collection periods in certain geographic regions, especially
  Europe, and greater difficulty in accounts receivable collections,

·

unexpected
  changes in regulatory requirements,

·

dependence
  on independent resellers,

·

dependence
  on technology standards,

·

import
  and export restrictions and tariffs,

·

difficulties
  and costs of staffing and managing international operations,

·

potentially
  adverse tax consequences,



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·

fluctuations
  in foreign exchange currency rates,

·

difficulties
  in enforcing contractual and intellectual property rights,

·

political
  instability,

·

disease
  and related quarantines,

·

boycotts
  and/or strikes,

·

the
  burdens of complying with multiple, potentially conflicting laws,

·

the
  impact of localized business cycles, and

·

regional
  economic conditions, cyclicality and instability.

Currency
  fluctuations could result in lower profitability for us in  dollar terms
  and the reporting of exchange losses.

We
  operate on a multinational basis and a significant portion of our business is
  conducted in currencies other than the U.S. dollar, our financial reporting
  currency. Approximately 34% of our sales and 54% of our operating expenses in
  fiscal year 2005 were denominated in euros, with the remainder in U.S. dollars
  and, to a lesser extent, other currencies. An increase in the value of the euro
  relative to the U.S. dollar will result in lower profitability in U.S. dollar
  terms assuming no change in revenue and cost structure. Fluctuations in the
  value of the currencies in which we conduct our business relative to the U.S.
  dollar have caused and will continue to cause dollar translated amounts to vary
  from one period to another. See Item 5.A. Non-GAAP Financial Measures.

Also,
  currency exchange rate movements of foreign currency denominated receivables
  and payables recorded by the Company and each of its subsidiaries, including
  their respective inter-company accounts, result in the reporting of realized
  and unrealized exchange gains or losses in our income statement. In order to
  mitigate the impact of exchange rate fluctuations, we enter into foreign exchange
  derivative financial instruments to protect against foreign currency rate improvements
  relative to the euro for anticipated cash flows from transactions between the
  Company and its subsidiaries. Due to the number of currencies involved, the
  constantly changing currency exposures and the volatility of currency exchange
  rates, we cannot predict the effect of exchange rate fluctuations on future
  operating results. While we have a policy of hedging our short-term currency
  exposures associated with anticipated cash flows from transactions with subsidiaries
  denominated in currencies other than the euro, there can be no assurance that
  this policy will be successful and/or properly executed. See Note 3 to
  the Consolidated Financial Statements.

Changes
  in tax laws or adverse outcomes resulting from examination of our income tax
  returns could adversely affect our results.

We
  are subject to income taxes in the United States, France, and in certain other
  foreign jurisdictions.  Significant judgment is required in determining
  our worldwide provision for income taxes.  Our future effective tax rates
  could be adversely affected by changes in tax laws, by our ability to generate
  taxable income in foreign jurisdictions in order to utilize foreign tax losses,
  and by the valuation of our deferred tax assets.  We regularly assess the
  adequacy of our provision for income taxes, but there can be no assurance that
  our assessments will be deemed accurate by one or more of the taxing authorities
  to which we are subject in the various jurisdictions in which we do business.

3.

Risks
  associated with our proprietary technology

We
  depend heavily on our proprietary technology. There can be no assurance that
  the means of protecting our proprietary rights will be adequate or that our
  competitors will not develop similar technology.

We
  rely primarily on a combination of copyright and trademark laws, trade secrets,
  confidentiality procedures and contractual provisions to protect our proprietary
  technology. We also license our products primarily in object code form, which
  does not allow our customers access to our source code. Source code is the form
  in which our proprietary technology is most vulnerable to theft, copying or
  misappropriation. See Item 4.B.  Proprietary Rights.

Despite
  our efforts to protect our proprietary rights, unauthorized parties may attempt
  to copy, use or make copies of our products or aspects thereof, or obtain or
  use information that we regard as proprietary. Policing unauthorized use of
  our



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products
  is difficult. In addition, the laws of many jurisdictions do not protect our
  proprietary rights to as great an extent as do the laws of France and the U.S.
  In particular, shrink-wrap licenses may be unenforceable under the
  laws of certain jurisdictions and copyright and trade secret protection for
  software may be unavailable in certain countries. Under current EU intellectual
  property laws, software does not benefit from patent protection. A draft EU
  Directive that aimed to grant patent protection to computer programs has been
  rejected by the European Parliament. Consequently, we rely primarily on the
  copyright laws of the US and France to protect our proprietary rights. We currently
  have one pending patent application in Japan, jointly filed with Mitsubishi
  Chemical Kabushiki Kaisha, which has been assigned application number P2003-46543,
  and one U.S. patent, identified as Patent No. US 6,928,436 B2, and entitled
  Interactive Generation of Graphical Visualizations of Large Data Structures.
  However, these and any other patents we obtain in the future may be circumvented,
  challenged, invalidated or designed around by other companies. The objective
  impossibility to adequately protect our intellectual property for these or other
  reasons could adversely affect our business and competitive position, operating
  results and financial condition. We cannot assure you that any patents will
  be issued with respect to our pending or any future patent applications.

Intellectual
  property infringement disputes could cause us significant expense and divert
  technical and management personnel.

There
  can be no assurance that we will not receive communications from third parties
  asserting that our products infringe, or may infringe, on their proprietary
  rights. We cannot prevent third parties from claiming intellectual property
  infringement against us. We have been subject to such claims in the past. For
  instance, in fiscal year 2002 we successfully defended an intellectual property
  infringement claim by a third party relating to JRules, which defense consumed
  significant expense and diverted technical and management personnel. In fiscal
  year 2003, a third party asserted that a feature of our ILOG Solver product
  infringes their patent. We vigorously contested this assertion as being without
  merit and while we have not changed our position in this regard, we have reached
  a tentative agreement to amicably resolve this matter in a manner that will
  have no material financial impact for the Company.

In
  addition, we may initiate claims or litigation against third parties for infringement
  of our proprietary rights or to establish the validity of our proprietary rights.
  Litigation to determine the validity of any claims could result in significant
  expense to us and divert the efforts of our technical and management personnel
  from productive tasks, whether or not such litigation was determined in our
  favor.

As
  the number of software products in the industry increases outside of Europe
  and the functionality of these products further overlap, we believe that software
  companies may become increasingly subject to infringement claims. Any such claims
  against us, with or without merit, as well as claims we initiate against third
  parties, could be time consuming and expensive to defend or prosecute and difficult
  to resolve, and could result in product shipment delays.  In the event
  of an adverse ruling in any such litigation, we might be required to pay substantial
  damages, discontinue the use and sale of infringing products, expend significant
  resources to develop non-infringing technology or obtain licenses to infringing
  technology. There can be no assurance that licenses to such technology would
  be available on reasonable commercial terms, if at all.

4.

Risks
  relating to business combinations

Acquisitions
  may result in additional liabilities or risks for the Company or the dilution
  of Share interests or earnings per Share.

We
  may in the future pursue acquisitions of complementary product lines, technologies
  or businesses. Such acquisitions could potentially result in the incurrence
  of debt and contingent liabilities and write-offs related to goodwill and other
  intangible assets, which could materially adversely affect our profitability.
  Were we to pursue one or more acquisitions, there can be no assurance that we
  will be able to successfully consummate such transactions, achieve the expected
  rates of return, integrate the acquired assets and business or the acquirees
  employees successfully into our working environment, and/or retain either our
  or the acquirees key employees.  Such acquisitions could also create
  product liability issues, and could result in a significant diversion of management
  attention away from the day to day operations of the Company.  In addition,
  acquisitions can result in a dilution of the position of our existing stockholders
  and our earnings per Share, as well as result in unanticipated legal risks and
  costs, and liabilities.



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Limitations
  imposed by French law and our by-laws may prevent or delay an acquisition of
  ILOG.

As
  a French company listed on the Euronext Paris stock market we are subject to
  certain requirements not generally applicable to corporations organized in the
  U.S. For example, our shareholders are subject to voting procedures that are
  more complicated than for U.S. companies generally. Shareholder approval at
  an Extraordinary Shareholders Meeting must be obtained for any new Shares
  issued in connection with a business combination, even if we are the surviving
  entity, or for an acquisition of assets in exchange for our shares. For the
  coming fiscal year, at such a meeting, the presence, in person or by proxy of
  shareholders holding one-fourth of the voting Shares upon first notice, and
  one-fifth of the voting Shares upon second notice, is required for a quorum.
  The increasing practice of U.S. shareholders not to exercise their voting rights
  may prevent us from obtaining a quorum for such a meeting and thus impair our
  ability to obtain shareholder approval for acquisitions, mergers and/or corporate
  reorganizations.

Our
  Board of Directors is authorized to issue Shares in the context of a tender
  offer or exchange offer for our Shares, provided that this issue is deemed to
  be made in the current conduct of business and that it will not affect the result
  of the tender or exchange offer. This current authorization expires as of the
  next Shareholders Meeting scheduled to take place on November 29, 2005,
  and will not be recommended for renewal.

In
  addition, French labor laws generally impose an obligation on an entity acquiring
  a business or product line to assume the role of employer for the employees
  affiliated with the business or product line being acquired. This may make it
  difficult for a non-French entity or an international entity with no presence
  in France to acquire our Company or one of our product lines.

5.

Other
  risks of owning ILOG Shares and ADSs

Changes
  in accounting principles may affect our reported earnings and operating income.

Generally
  accepted accounting principles and accompanying accounting pronouncements, implementation
  guidelines and interpretations for many aspects of our business, such as revenue
  recognition for software and treatment of goodwill, are highly complex and involve
  subjective judgments. Changes in these rules, their interpretation, or changes
  in our products or business could significantly change our reported earnings
  and operating income and could add significant volatility to those measures,
  without a comparable underlying change in cash flow from operations. See Note
  1 to Consolidated Financial Statements.

Holders
  of ADSs may be subject to additional risks related to holding ADSs rather than
  Shares.

Because
  holders of ADSs do not hold their Shares directly, they are subject to the following
  additional risks:

·

Fluctuations
  in the exchange rate for converting euros into U.S. dollars may affect the value
  of ADSs.  Specifically, if the relative value of the euro against the U.S.
  dollar declines, the U.S. dollar equivalent of the euro trading prices of Shares
  on Euronext, which may consequently cause the trading price of ADSs in the United
  States to also decline; the U.S. dollar equivalent of the proceeds that a holder
  of ADSs would receive upon the sale in France of any Shares withdrawn from the
  Depositary; and the U.S. dollar equivalent of cash dividends paid in euros on
  the Shares represented by ADSs.

·

In
  the event of a dividend or other distribution, if exchange rates fluctuate during
  any period of time when the Depositary cannot convert a foreign currency into
  U.S. dollars, the ADS holder may lose some or all of the value of the distribution.
  There can be no assurance that the Depositary will be able to convert any currency
  at a specified exchange rate or sell any property, rights, shares or other securities
  at a specified price, or that any of such transactions can be completed within
  a specified time period.

·

In
  order to vote at General shareholders Meetings, ADS holders who are not
  registered on the books of the Depositary are required to transfer their ADSs
  a certain number of days before a General shareholders Meeting into a
  blocked account established for that purpose by the Depositary. Any ADS transferred
  to this blocked account will not be available for transfer during that time.
  ADS holders who are registered on the books of the Depositary must give instructions
  to the Depositary not to transfer their ADSs during this period before the



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general
  shareholders meeting. ADS holders must therefore receive voting materials
  from the Depositary sufficiently in advance in order to make these transfers
  or give these instructions. There can be no guarantee that ADS holders will
  receive voting materials in time to instruct the Depositary to vote. It is possible
  that ADS holders, or persons who hold their ADSs through brokers, dealers or
  other third parties, will not have the opportunity to exercise a right to vote
  at all.

·

ADS
  holders may not receive copies of all reports from the Depositary or us. They
  may have to go to the Depositarys offices to inspect any reports issued.

·

The
  Depositary and we may amend or terminate the Deposit Agreement without ADS holders
  consent in a manner that could prejudice ADS holders.



Item
  4.

Information
  on the Company

A.

History
  and Development of ILOG

ILOG
  S.A. is a société anonyme, a form of corporation, incorporated
  under the laws of France. The Company was registered at the Greffe of
  the Registry of Commerce, Paris on April 7, 1987 for a duration of 99 years.
  The Company was founded by Mr. Pierre Haren, Mr. Marc Fourrier and Mr. Jérôme
  Chailloux, with the support of the Institut National de Recherche en Informatique
  et en Automatique (INRIA). We are subject to French law and
  in particular to the French company law and regulations under Book II of the
  French Code du Commerce (the Commercial Code) and to Decree
  No. 67-236 of March 23, 1967 on commercial companies.

We
  are registered with the Register of Commerce and Companies of Créteil under
  number B 340 852 458. Our corporate worldwide purposes may be found in Article
  3 of our statuts, or charter, and are summarized as follows:

a)

the
  consultation and completion of research and studies and all services related
  to intelligent software,

b)

the
  development, running, distribution and maintenance of hardware and software,

c)

training
  in these areas of activity, including audiovisual techniques and all useful
  support tools,

d)

the
  setting-up of new companies, capital contributions, the purchase of securities,
  mergers, alliances or investment companies or by lease or management lease of
  any assets or rights or otherwise, directly or indirectly, on our own behalf
  or on behalf of third parties, for sale or in conjunction with third parties,

e)

the
  issuance of any guarantees, performance bonds and other security interests in
  compliance with the provisions of current laws and regulations to any company,
  ILOG entity, in connection with their activities, as well as the financing of
  their activities,

f)

the
  contracting of any loan and the use of different methods of financing with a
  view to facilitating the financing of ILOGs operations, and

g)

all
  financial, commercial, industrial, civil, real property, personal property transactions
  or services that may be directly or indirectly related to one of the specified
  purposes or to any similar or related purpose which may further the development
  of ILOGs assets.

Our
  registered office is located at 9 rue de Verdun, 94253 Gentilly, France, and
  our telephone number is +33 1 49 08 35 00. Our agents
  for service of process in the United States are Corporation Service Company,
  6th Floor, 80 State Street, Albany, NY 12207-2543 and CT Corporation, 3 Winners
  Circle 3rd Floor, Albany, NY 12205. Our website is www.ilog.com.
  Information contained on or linked to ILOGs website is not part of this
  Annual Report. We make our Annual Reports on Form 20-F and Document
  de Référence, and amendments to these reports, if any, available
  free of charge through our website as soon as possible following their respective
  filing with the SEC and the AMF.

In
  1987, we began shipping software components developed in the LISP programming
  language. In 1992, we started to transition our products to the C++ programming
  language. In 1993, we began shipping ILOG Views and ILOG Solver. In 1997, we
  acquired the business of CPLEX Optimization, Inc. (CPLEX), located
  in Incline Village, Nevada, which provided linear based optimizer products written
  in the C programming language. In 1998, we started to introduce Java versions
  of our products. We introduced a C# version of some of our visualization products
  in fiscal year 2004 and of our BRMS



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products
  in fiscal year 2005. C# is a programming language developed by Microsoft.

Our
  software development efforts are mostly based in France, except for the CPLEX
  products, which are developed in Incline Village, Nevada and Mountain View,
  California. Until 1995 our sales were concentrated in Europe, particularly in
  France. In 1995, we started to expand our sales efforts globally by establishing
  a major sales presence in the U.S. and Asia and acquiring CPLEX in 1997, which
  has resulted in revenue and expense growth.

Until
  our initial public offering in 1997 on the NASDAQ National Market, which raised
  $24.9 million, we were financed through a combination of retained earnings,
  venture capital funding and interest free loans from French government agencies
  and the European Union. We partially financed the 1997 CPLEX acquisition through
  the issuance of 1.7 million shares and promissory notes totaling $5.0 million.
  In 1998, an additional financing of $10.5 million was received from SAP A.G.
  in exchange for 685,064 shares. In 1998 we listed our shares on the Nouveau
  Marché of Euronext Paris. The Nouveau Marché merged into
  the regulated market, Eurolist of Euronext, in 2005. See Item 9.  The
  Offer and Listing.

B.

Business
  Overview

Our
  Company

ILOG
  is a worldwide provider of enterprise software and services. We develop, market,
  sell and support business rule management systems, which we refer to herein
  as BRMS, as well as optimization-based decision tools and applications, and
  visualization software components that help organizations make decisions faster
  and manage change and complexity. A benefit we believe is unique to our BRMS
  products is that they enable software architectures that empower business users
  to maintain business logic without involving software professionals, by allowing
  portions of software code to be translated in the form of business rules which
  can then be read and manipulated by business users. We believe that by implementing
  ILOGs BRMS across an enterprise, organizations can quickly address specific
  business process changes, and be proactive in response to changing business,
  regulatory and environmental conditions.

ILOG
  software provides key functionality for an emerging software area, business
  process management, referred to herein as BPM. ILOGs optimization and
  visualization software components provide core functionality for strategic business
  applications such as supply chain planning, workforce scheduling and telecom
  network management.

We
  currently have business locations in seven countries, but have two principal
  locations where our management is based. Our principal executive offices are
  located at 9 Rue de Verdun in Gentilly, France, a suburb of Paris. Our U.S.
  executive offices are located at 1080 Linda Vista Avenue in Mountain View, California,
  in the San Francisco Bay Area.

Business
  Strategy

Our
  business strategy is focused on the following key areas:

Establish
  Business Rule Management Systems as an Enterprise Software Platform. We
  are targeting to meet the demand for business rule technology as a key enabler
  of agility and business process automation across the corporate enterprise.
  Historically, business software applications have not been able to meet rapidly
  changing business environments. Silos of data, embedded application code and
  logic and legacy systems are each impediments to an organizations ability
  to adapt to changing business conditions. We believe that our BRMS offering
  gives organizations the ability to architect agility into their
  software systems, allowing them to address the challenges of business change
  in a cost-effective way. BRMS also helps organizations centralize their business
  rules in a single or a few repositories, facilitating their maintenance and
  ensuring consistent deployment across the enterprise. Another key benefit of
  BRMS is that it can be implemented on top of existing software.
  Some of our customers use the BRMS to facilitate the transition from older software
  architectures, such as COBOL, to Java, without simultaneously having to perform
  a major overhaul of the underlying software infrastructure, by extracting hard-coded
  business logic and translating it into business rules that run on top of the
  remaining legacy application.

Create
  Broader Market for Optimization Products.  We are trying to extend
  the reach of our optimization market



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penetration
  by promoting our products to a broader audience.  Our efforts in this regard
  include selling our products directly to customers as well as through channels,
  and by developing vertical solutions. Our development tools now include Optimization
  Decision Manager (ODM), which enables accelerated development and deployment
  of optimization software applications by allowing business users, through a
  packaged business user interface, to take part in the rapid prototyping and
  iterative development needed to define key performance indicators, business
  rule templates, solution views and business goals.  In addition, our OPL
  Development Studio product is a development environment which can expedite the
  development and deployment of optimization applications because it contains
  an intuitive programming language that reduces coding and when used with our
  component libraries, models are easily embedded and data can be readily accessed.
   We are also developing new software applications focused on specific scheduling
  and planning opportunities in the manufacturing and transportation markets,
  and we are hopeful that these solutions will be well received in these markets.

Leverage
  BPM Software Trends. The push for greater process efficiency that drives
  the demand for BPM, as well as the requirements for more corporate tracking
  and accountability, have created opportunities for our products. Our BRMS and
  optimization components deliver real-time decision making capabilities to the
  processes managed by the BPM systems and can empower business users to manage
  these decision rules, while our visualization components provide real-time supervision
  of the execution of these processes.

Strengthen
  our Services Offerings. We are actively promoting and improving our professional
  services offerings. These services are designed to facilitate customer adoption
  of our products, and accelerate their deployment, so that further license and
  maintenance revenues can be generated for us.  As part of our service offering
  improvements, we have developed service packages and a methodology for assessing,
  designing and implementing business rules application projects to help our customers
  accelerate their development work which in turn allows them to deploy applications
  sooner.

Grow
  Alliances with Strategic Systems Integrators and Software Vendors. We are
  creating co-selling and co-marketing relationships for ILOG products in the
  BPM and Enterprise Application Integration, or EAI, areas to expand our market
  reach. This effort is accompanied by the partnerships that we are establishing
  with leading systems integrators, such as Accenture, BearingPoint, CapGemini,
  KPMG and IBM Global Services, as well as regional integrators. We are also partnering
  in co-selling activities with BEA, IBM, Oracle, and BPM and workflow vendors,
  such as Adobe, Documentum, FileNet, Fuego, Fujitsu, HandySoft, and Vitria among
  others.

Expand
  Revenues from Software Vendors. Our agreements with independent software
  vendors, referred to herein as ISVs, have consistently been a key part of our
  business strategy, because they enable the deployment of our software in business
  application markets that we would not otherwise be able to access directly.
  ISVs generate revenues for us when they embed one or more ILOG components into
  their products. As of June 30, 2005, we have entered into agreements with 465
  ISV partners, of which 256 of these ISVs generated approximately 24% of our
  revenues in fiscal year 2005. We also intend to further leverage our close relationships
  with some of these ISVs by creating co-marketing and co-selling opportunities
  for our BRMS products.

Increase
  Penetration of our Existing Customer Base. A key component of our strategy
  is to achieve additional revenues from existing customers by selling additional
  licenses or unlimited use application-specific licenses, helping our customers
  extend the use of our software to new projects, and by promoting unlimited use,
  enterprise-wide licenses.

Products

We
  offer software for business rule management, optimization and visual interfaces.
  Our component software is designed to be flexible and can be deployed on a wide
  range of hardware and software platforms.  We are also developing several
  industry-specific applications for use in the semiconductor chip manufacturing,
  transportation and process manufacturing sectors. These products will be capable
  of being incorporated into a customers existing business operation following
  a limited development/custom implementation cycle.

Our
  products are high-performance C, C++, C# or Java components sold in binary form
  delivered on CD-ROMs or over the internet. Our component software is sold to
  C, C++, C# or Java developers within information technology (IT or MIS) departments
  of end-user enterprises or to system integrators, value added resellers, referred
  to herein as VARs, ISVs, and



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original
  equipment manufacturers, referred to herein as OEMs. The components facilitate
  rapid development and deployment of complex applications by providing pre-written
  portions of the software in order to reduce the time, cost and risk of the application
  development cycle. The components are independent and can be purchased for integration
  into new or existing applications individually or in combination with other
  components. The components run on the most popular Windows and UNIX platforms
  as well as on some main frame architectures and can be used to facilitate client-side,
  server-side or internet development efforts.

Our
  product revenue can be analyzed as follows:

|                       |  | Year
        ended June 30, 2005 |  | Year
        ended June 30, 2004 |  | 2005
        Increase (decrease) 
        over 2004 | 
|---------------------- |  | -------------------------------- |  | -------------------------------- |  | --------------------------------------------------- | 
|                       |  | Licenses                         |  | Maintenance                      |  | Total                                               | 
|                       |  | (in
        thousands)           | 
|Business
        Rules |  | $29,698                          |  | $10,671                          |  | $40,369                                             | 
|Optimization           |  | 20,825                           |  | 14,771                           |  | 35,596                                              | 
|Visualization          |  | 17,184                           |  | 8,716                            |  | 25,900                                              | 
|Total
        Revenues |  | 67,707                           |  | 34,158                           |  | 101,865                                             | 
|                       |  |                                  |  |                                  |  |                                                     | 



Business
  Rule Management Systems

We
  currently have the following BRMS products:

·

ILOG
  JRulesis the foundation of ILOGs enterprise-level BRMS for Java.
  It includes a rule kit for creating, editing and maintaining business rules,
  a rule repository for storing business rules, and a high-performance business
  rule engine for executing rules.

·

ILOG
  Rules is the C++ version of ILOG JRules.

·

ILOG
  Rule Studio for .NET represents ILOGs BRMS offer on the Microsoft .NET
  platform. It contains most of ILOG JRules components plus an integration in
  the Microsoft Office suite allowing business users to edit business rules in
  this environment.

·

ILOG
  JConfigurator uses our constraint-programming optimization technology for configuration
  applications, interactive selling systems and customer relationship management,
  or CRM, applications. It includes the rule-editing and management features present
  in our JRules product.

Optimization
  Products

ILOGs
  component optimization software is widely used around the world. Over 1,000
  organizations including 160 of the Global 500 use ILOG optimization tools to
  build and maintain custom applications that help them make better decisions
  in planning, scheduling, investments, pricing, procurement and other core business
  processes. Optimization is a core competence in manufacturing, transportation
  and investment management and is increasingly important in the utility, energy,
  mining, and retail sectors. ILOGs optimization products are also used
  in the research and teaching programs at over 500 universities worldwide.

ILOG
  also sells a complete application development environment called Optimization
  Decision Management Systems, as well as applications with pre-built optimization
  models. There are currently five products in the product line and three new
  vertical applications, two of which are under development.

·

ILOG
  CPLEX is a math programming engine, able to optimally solve linear programs
  and mixed-integer programs.

·

ILOG
  CP (Constraint Programming) is a constraint programming engine, able to find
  feasible solutions to scheduling problems.  It is made up of ILOG Solver,
  ILOG Scheduler, and ILOG Dispatcher.

·

ILOG
  OPL Development Studio is a specialized development environment for building
  optimization models. This framework includes a specialized language that can
  describe objective functions, constraints, costs and other factors, and also
  includes an online model library, database connectivity tools, debugging tools
  and an



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automatic
  code generator within a graphical environment.

·

ILOG
  Optimization Decision Manager is a specialized application development tool
  that generates interactive decision support applications based on the structure
  of one or more optimization models. It focuses on rapid scenario creation and
  scenario comparison.

·

ILOG
  ODF (Optimization Development Framework) is an add-on to the mySAP APO (Advanced
  Planner and Optimizer) supply chain solution from SAP A.G., and allows users
  to extend APOs standard optimization capabilities and customize their
  applications to suit their individual requirements.

·

ILOG
  Fab PowerOps* is an application designed to improve scheduling for wafer processing
  in semiconductor manufacturing operations.

·

ILOG
  Plant PowerOps* is an application designed to assist the planning and scheduling
  of standard discrete and process manufacturing production processes.

·

ILOG
  Transport PowerOps is an application designed to assist route planning and scheduling
  for the trucking industry.



Visualization
  Products

Our
  data visualization and human-machine interface components provide visually-rich
  graphical user interfaces. Today, we sell the following products as components:

·

ILOGJViewsis a set of software components which presents data in different
  formats, such as maps, Gantt charts, diagrams and workflows. Each of these components
  can be purchased separately. They are suitable for building models, monitoring
  and performance analysis displays for business process management, business
  activity monitoring, fleet management, network supervision, C3I
  in defense, production planning and scheduling. JViews is a data visualization
  and graphical environment providing components for structured two-dimensional
  graphics. It is used to solve a wide range of graphics problems in industrial
  and commercial environments and to supplement the user interface toolkits that
  are provided by the various platforms to build the dialogs and menus such as
  Windows, Motif and Swing, with graphical components and tools aimed to display
  and interact with application data.

·

ILOG
  Views is an enterprise class visualization toolkit used to develop advanced
  user interfaces for supervision applications. It provides a set of editors and
  C++ components consisting of interactive 2D graphics, maps, charts, Gantt charts,
  automatic graph arrangement and connections to data sources such as databases
  or XML. ILOG Views takes advantage of the rendering capabilities given by the
  underlying platform, such as Microsofts GDI+ (transparency, gradient,
  anti-aliasing). Views code is portable across UNIX, Windows, and Linux platforms.
  ILOG Views provides a full set of portable widgets, including buttons, menus
  and notebooks, that comply with the look-and-feel of Windows and Motif.

·

ILOG
  JTGO is a vertical product based on ILOG JViews for building the operation support
  system user interfaces that are used in the telecommunications industry.

*

These
  applications are still under development.  We hope to release final versions
  of these applications in the future.

·

ILOGGanttfor .NETis the C# version of the Gantt module already available
  as part of JViews and Views Suites. ILOG Gantt for .NET is a set of Windows
  Form and Web Form controls, and Application Programming Interfaces, hereafter
  referred to as APIs, for viewing and editing schedules in Windows and Web Form/ASP.NET
  applications. It features resource and task-oriented views, calendars, and resource
  load-charts. It also provides a comprehensive set of editing and viewing features,
  a load-on-demand mechanism for very large data sets, and a complete printing
  facility for paper viewing.

On
  July 2, 2004, ILOG bought the intellectual property and other selected assets
  of the JLoox product line for €1.5 million (USD 1.8 million) from eNGENUITY
  Technologies Inc., a Montreal, Canada-based software provider. JLoox is used
  for the development of advanced visual applications. It complements the ILOG
  JViews product line especially in the defense, transportation management and
  manufacturing markets.



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Applications

ILOG
  software components are used in a wide range of applications in the manufacturing,
  financial services, transportation, communications, e-government, and defense
  and aerospace sectors. Below is a summary of the types of applications developed
  by customers using our products by industry sectors.

|Manufacturing                                             |  | Communications                                                                 
|--------------------------------------------------------- |  | -------------------------------------------------------------------------------
|Supervision
        and Data Visualization                |  | Network
        and Systems Management                                         
|·
      Equipment
        performance analysis            |  | ·
      Network
        visualization                                          
|·
      Geographic
        information systems            |  | ·
      Configuration
        management                                       
|·
      Process
        monitoring and control            |  | ·
      Fault
        management                                               
|·
      Quality
        analysis                          |  | ·
      Performance
        management                                         
|Resource
        Optimization                             |  | ·
      Security
        management                                            
|·
      Equipment
        configuration and diagnostics   |  | Service
        Management                                                     
|·
      Logistics
        and distribution planning       |  | ·
      Dynamic
        tariff policy management                               
|·
      Manpower
        planning and crew scheduling     |  | ·
      On-demand
        service provisioning                                 
|·
      Production
        line scheduling                |  | ·
      Flexible
        invoicing                                             
|Production
        Planning                               |  | Network
        Planning                                                       
|·
      Supply
        chain logistics                    |  | ·
      Economic
        analysis                                              
|·
      Warehouse
        management                      |  | ·
      Ground
        and space equipment scheduling                          
|                                                          |  | ·
      Satellite
        mission planning                                     
|Financial
        Services                                |  | ·
      Network
        modelling                                              
|Asset
        Management                                  |  | e-Government                                                                   
|·
      Online
        investment management              |  | ·
      Eligibility
        screening systems (welfare, loans, health services)
|·
      Online
        trading                           
|                                                          |  | ·
      Benefit
        calculation                                            
|·
      Portfolio
        management & optimization       |  | ·
      Grant
        management                                               
|·
      Risk
        management                           |  | ·
      Case
        management                                                
|·
      Automated
        trading                         |  | ·
      Data
        compliance validation and interoperability                
|·
      Order
        generation & management             |  | Defense
        & Aerospace                                                    
|·
      Straight-through-processing                       |  | Command,
        Control, Communications and Intelligence(C3I) systems         
|·
      Anti-money
        laundering                    
|                                                          |  | ·
      Data
        fusion                                                    
|Online
        Lending                                    |  | ·
      Geographic
        information systems                                 
|·
      Loan
        configuration                        |  | ·
      Image
        processing                                               
|·
      Loan
        assessment/eligibility               |  | ·
      Logistics
        mapping                                              
|Insurance                                                 |  | ·
      Electronic
        War                                                 
|·
      Underwriting                                      |  | ·
      Signal
        Intelligence (SIGINT)                                   
|·
      Claims
        processing                         |  | Mission
        Planning                                                       
|Transportation                                            |  | Homeland
        Security                                                      
|Resource
        Optimization                             |  | Process
        Monitoring                                                     
|·
      Airport
        counter, gate and belt allocation |  | ·
      Data
        flow monitoring                                           



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|·
      Crew
        allocation                     |  | ·
      Radar
        visualization               
|--------------------------------------------------- |  | --------------------------------------------------
|·
      Distribution
        planning               |  | ·
      Test
        bench monitoring simulation  
|·
      Equipment
        scheduling                |  | ·
      Flight
        simulators                 
|·
      Fleet
        management                    |  | ·
      Scenario
        analysis                 
|·
      Maintenance
        planning and scheduling |  | Resource
        Allocation and Optimization      
|·
      Capability
        analysis                 |  | ·
      Frequency
        and bandwidth allocation
|·
      Timetabling                                 |  | ·
      Mission
        planning                  
|·
      Traffic
        planning                    |  | ·
      On-board
        resource scheduling      
|·
      Warehouse
        management                |  | ·
      Payload
        optimization              
|Supervision
        & Data Visualization            |  | ·
      Supply
        chain logistics            
|·
      Geographic
        information systems      |  |                                                   
|·
      Traffic
        monitoring                  |  |                                                   
|·
      Vehicle
        tracking systems            |  |                                                   
|·
      Security                                    |  |                                                   



|Across
        Industry Solutions        
|-----------------------------------------
|Business
        Process Management      
|Enterprise
        Performance Management
|Business
        Activity Monitoring     
|Customer
        care & billing          
|Compliance                               



Maintenance

Customer
  support is provided globally from our primary customer support centers in Gentilly
  (France), Mountain View (California), and Singapore. Our maintenance activities
  include access to new releases and enhancements of our products.

Professional
  Services

We
  provide a number of services to assist customers in the design, development
  and deployment of their applications when using our software components and
  products.

Consulting
  Services

Our
  consulting services provide expertise in the design, development and deployment
  of business applications based on our BRMS, optimization and visualization products.
  This expertise leverages our experience building vertical applications in areas
  including telecommunications, supply chain management, manufacturing, financial
  services, commercial and residential lending, transportation, defense and government.
  Most of our engagements are delivered on a time and material basis but we also
  offer full implementations on fixed-price terms. Our consulting resources are
  located in major countries around the world and we periodically supplement them
  with third-party consulting partners as needed.  See Item 3. DRisk
  Factors.

Customer
  Education & Training

We
  offer training programs so that our customers can gain expertise using our BRMS,
  optimization, and visualization products. Regular classes are held in our offices
  worldwide, and we also provide training at customer sites on request.



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Sales
  and Marketing

We
  market and sell our products and services worldwide through our direct sales
  organization and indirectly through VARs, systems integrators, ISVs, OEMs, and
  distributors. Our field sales organization is divided into geographic regions
  based in the Americas, Asia-Pacific and Europe. We have field account managers,
  who manage the customer relationship, and field technical engineers, who manage
  the technical requirements, perform demonstrations and/or develop proof-of-concept
  projects for our customers. We also have a telesales organization, known as
  ILOG Direct which sells primarily our JViews and CPLEX products, and which also
  handles our academic sales. ILOG Direct focuses on high-velocity product sales,
  while the field sales team focuses on growing and fulfilling large and complex
  business opportunities, and consulting projects. We also have an alliance organization
  in charge of recruiting and managing our partner relationships.

Our
  sales cycle is approximately three to six months, but varies substantially from
  customer to customer. It can be longer if the process involves a request for
  proposal (RFP), or if the customer wants to conduct an extensive
  evaluation of our software prior to making a purchase. See Item 3.D. Risk
  Factors--1.Risks concerning our ability to achieve financial results--The extended
  length of our sales cycle could result in substantial fluctuations in operating
  results.

To
  support our sales efforts, we conduct marketing programs including advertising,
  direct mail, public relations, web-based and in-person seminars, trade show
  exhibitions and on-going customer communications activities and events.

Research
  and Product Development

Our
  continued success depends on our ability to continue innovating in our areas
  of expertise and to anticipate and incorporate new features and functions in
  our products that may become critical in the future. As a result, we have committed,
  and expect to continue to commit, substantial resources to our research and
  development efforts. In fiscal year 2005, we spent $27.2 million, net of government
  funding, on research and development, representing approximately 22% of sales,
  as compared with $22.8 million and $18.9 million in fiscal year 2004 and fiscal
  year 2003, respectively. Our developers also work closely with customers to
  gain insights into usability and they actively engage with the appropriate scientific
  and academic communities to ensure our products stay on the cutting edge of
  their respective disciplines. To date, we have primarily relied on in-house
  development for our products, performed in our research and development centers
  in Gentilly and Sophia Antipolis in France, and in Mountain View, California
  and Incline Village, Nevada, but we have licensed some technology from third
  parties, especially for our ILOG Fab PowerOps product.

Research
  and development costs prior to the establishment of technological feasibility
  are expensed as incurred. Because the period between achievement of technological
  feasibility and the general release of the Companys products has been
  of relatively short duration, development costs qualifying for capitalization
  were insignificant during the years ended June 30, 2005, 2004 and 2003, and
  accordingly, have been charged to research and development expenses in the accompanying
  statements of operations.

In
  addition to research and development expenses, we periodically purchase software
  and hardware equipment, which are used internally. In fiscal year 2005, this
  expenditure totaled approximately $2.6 million.

Customers

As
  of June 30, 2005, we have sold our products and services to more than 2,500
  customers in 30 countries. Our customers represent software vendors, governmental
  and educational institutions and major corporations operating a wide range of
  industries. Below is a partial list of customers, by industry segment, who have
  made purchases of our software and/or services over the last two years.

|Manufacturing              |  | Communications               | 
|-------------------------- |  | ---------------------------- | 
|Chevron
        Texaco     |  | I2
        Technologies      | 
|Daimler
        Chrysler   |  | Manugistics                  | 
|Ford
        Motor Company |  | MG
        Industries        | 
|Hewlett-Packard            |  | Nissan
        Motor Co. Ltd | 
|SAP                        |  | Oracle                       | 



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|Financial
        Services             |  | e-Government                | 
|-------------------------------------- |  | --------------------------- | 
|Bank
        of America                |  | Lehman
        Brothers     | 
|Barclays
        Global                |  | MetLife                     | 
|Bear
        Stearns                   |  | Radian
        Group        | 
|Citi
        Street                    |  | 21st
        Century        | 
|Credit
        Suisse First            |  | Insurance                   | 
|Boston                                 |  | Visa                        | 
|Deutsche
        Bank                  |  | Zurich
        Insurance    | 
|Fannie
        Mae                     |  | Freddie
        Mac         | 
|Travel
        and Transportation      |  | Defense
        & Aerospace | 
|Air
        France                     |  | Schneider
        Logistics | 
|Deutsche
        Bahn                  |  | La
        Poste            | 
|APL                                    |  | Lufthansa                   | 
|DHL                                    |  | Northwest
        Airlines  | 
|FedEx                                  |  | Sabre                       | 
|French
        National Railway (SNCF) |  |                             | 
|Across
        Industry Solutions      | 
|Hewlett-Packard                        |  | Siebel                      | 



Competition

The
  markets for our products and services are intensely competitive and we expect
  product and service offerings and pricing competition to increase. We compete
  with a number of private and public companies in our individual product lines.
  However, we have no competitor across all three of our product lines. Our competitors
  include, without limitation, by product line: (i) Rules: Computer Associates,
  Corticon Technologies, Fair Isaac, Haley, Pegasystems, and Microsoft; (ii) Optimization:
  Cosytec, and Dash Associates; (iii) Visualization: SL Corporation and Tom Sawyer.
  We also compete with companies that provide packaged software for certain applications.
  Some of our competitors have longer operating histories, significantly greater
  financial, technical and marketing resources, greater name recognition, broader
  product offerings and a larger installed base of customers than we do. In addition,
  some of our competitors have well-established relationships with our current
  and potential customers.

We
  are also facing increased competition from low cost companies in
  India and other countries. In addition, virtually all of our customers have
  significant investments in their existing solutions and have the resources necessary
  to enhance existing products and to develop future products. These customers
  have or may develop and incorporate competing technologies into their systems,
  thereby replacing our current or proposed components. This would eliminate their
  need for our services and components and limit future opportunities. We are,
  therefore, required to persuade development personnel within these customer
  organizations to outsource the development of their software and to provide
  products and solutions to these customers that cost-effectively compete with
  their internally developed products.

Current
  and potential competitors have established or may establish cooperative relationships
  among themselves or with third parties to increase the ability of their products
  to address the needs of our current and prospective customers. Accordingly,
  it is possible that new competitors or alliances among competitors may emerge
  and rapidly gain significant market share. New or enhanced products introduced
  by existing or future competitors could increase the competition faced by our
  products. Barriers to entry in our business generally are low and the software
  industry is currently undergoing consolidation as software companies seek to
  offer more extensive suites and broader arrays of software products, as well
  as integrated software and hardware solutions.  This consolidation and
  increased competition could result in fewer customer orders, price reductions,
  reduced transaction size, reduced gross margins and loss of market share, any
  of which could have a material adverse effect on our business, operating results
  and financial condition. See Item 3.D. Risk



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Factors1.
  Risks concerning our ability to achieve financial resultsThe industry
  in which we operate is characterized by intense competition.

Proprietary
  Rights

We
  believe we own or have licensed the proprietary rights of our software products.
  We have attempted to protect our proprietary rights through a number of ways:
  (i) we require persons with access to our proprietary information to sign confidentiality
  agreements; (ii) we restrict access to our source codes; (iii) we rely on laws
  and regulations regarding trade secrets and copyrights, that only offer a limited
  protection, to protect our software products, our documents or various written
  materials; and (iv) we are prepared to litigate to protect our proprietary technology,
  relying on copyright and trademark laws, trade secrets, confidentiality procedures
  and contractual provisions.

ILOG
  S.A., our parent company, owns all our intellectual property rights. Our subsidiaries
  license the ILOG intellectual property from our parent company which is, in
  turn, licensed or sub-licensed to our customers or our resellers. For these
  licensing rights, the subsidiaries pay the parent company a royalty based on
  the subsidiaries revenues.

ILOG
  source codes have been deposited in France with the national software protection
  agency (the Agence pour la Protection des Programmes), with
  NCC Escrow International Limited in the U.K., and with Recall Total Information
  Management Services and Digital Systems Innovations, Inc. (DSI), in the United
  States.  See Item 3.D. Risk Factors3. Risks associated with
  our proprietary technology.

Seasonality

A
  significant proportion of our sales come from Europe. Similar to many countries
  in the software industry with significant sales outside of the United States,
  we generally realize lower revenues in the quarter ending September 30 than
  in the immediately preceding quarter due primarily to reduced economic activity
  in the summer months. See Item 3.D. Risk Factors1.Risks concerning
  our ability to achieve financial resultsOur quarterly operating results
  have fluctuated significantly as have the price of our Shares and ADSs and they
  may continue to do so in the future.”

Insurance

We
  have general liability and errors and omission insurance coverage up to a total
  of €26 million per year in France and $12 million per year in the U.S.,
  which is limited to €12 million and $11 million per occurrence, respectively.
  We also have Directors and Officers insurance covering certain liabilities of
  our directors and officers as well as local property insurance coverage for
  each of our offices worldwide. See Item 3.D. Risk Factors2. Risks
  that could adversely affect our business operationsErrors in our software
  products could result in warranty or product liability claims against us.

C.

Organizational
  Structure

ILOG
  S.A. is the holding company of the group, which is composed of the following
  wholly owned subsidiaries:

·

ILOG,
  Inc. (U.S.),

·

ILOG
  Ltd. (U.K.),

·

ILOG
  GmbH (Germany),

·

ILOG
  SA (Spain),

·

ILOG
  (Pte) Ltd (Singapore), and

·

ILOG
  Ltd. (Japan).

In
  fiscal year 2005, ILOG acquired 12.5% of a South Korean company called RTO.
  The RTO investment has been consolidated under the equity method in our 2005
  financial statements.



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Our
  executive officers are located at the head office of the parent company in France
  and at our largest subsidiary, ILOG, Inc. in California.

D.

Property,
  Plant and Equipment

Our
  corporate headquarters are located in Gentilly, France, a suburb of Paris, in
  premises consisting of approximately 62,000 square feet under leases expiring
  from 2007 to 2013. We have our U.S. headquarters in Mountain View, California
  in premises consisting of approximately 36,000 square feet under a lease expiring
  in 2007. We maintain a research and development facility in Sophia Antipolis,
  in the south of France, in premises consisting of approximately 12,000 square
  feet under leases expiring from 2005 to 2010. We maintain a sales office and
  research and development facility in Incline Village, Nevada, in premises consisting
  of approximately 5,000 square feet under a lease expiring in 2007. In addition,
  we have leased sales offices in Arlington, Virginia; Farmington Hills, Michigan;
  and Southborough, Massachusetts, with approximately 12,000 square feet in aggregate
  under leases expiring from 2006 to 2008. We also maintain leased sales and customer
  support offices in Bracknell, near London, England; Bad Homburg, near Frankfurt,
  Germany; Madrid, Spain; Singapore; Beijing, China; and Tokyo, Japan, with approximately
  36,000 square feet in aggregate. Our minimum future commitment under these office
  leases as of June 30, 2005 amounts to approximately $13.6 million.

Item
  5.

Operating
  and Financial Review and Prospects

The
  following discussion and analysis should be read together with our Consolidated
  Financial Statements and the Notes to those statements included elsewhere in
  this Annual Report on Form 20-F. The Consolidated Financial Statements included
  herein and the financial information discussed below have been prepared in accordance
  with U.S. GAAP. ILOG also publishes Consolidated Financial Statements, not included
  herein, prepared in accordance with French GAAP, which differ in certain respects
  from U.S. GAAP.

This
  discussion contains forward-looking statements based on our current expectations,
  assumptions, estimates, and projections. These forward-looking statements involve
  risks and uncertainties. Our actual results could differ materially from those
  indicated in these forward-looking statements as a result of certain factors,
  as more fully described below and in Cautionary Statement Regarding Forward-Looking
  Statement, Item 3. Key Information Risk Factors, Item
  4. Information on the Company and elsewhere in this Annual Report on Form
  20-F.

Overview

ILOG
  develops, markets, supports and provides consulting services for software used
  for BRMS, resource optimization and visual interfaces. Our component software
  is not industry specific and can be configured for use in a wide variety of
  businesses. Several new optimization products in the late stages of development
  are directed to the semiconductor chip manufacturing, transportation and process
  manufacturing industries. Our customers, or upon request from our customers,
  our consulting services department, use our software to develop strategic business
  applications or to solve complex business problems. Examples include insurance
  underwriting and claims handling, airline crew and equipment scheduling, government
  security operations, telecommunications network display, financial trading,
  commercial and residential lending, and order processing. Because of the horizontal
  or generic nature of the functionality of our software components,
  additional development to fit the particular customer industry is required.
  For our customers that are trying to automate very complex problems, the additional
  development process can prove difficult and expensive, and therefore purchasing
  decisions are sometimes difficult to capture accurately in our forecasts.

Our
  revenues are generated from three different sources: software licenses, maintenance
  and professional services. In fiscal year 2005, we received 54% of our revenues
  from licenses, 27% from maintenance, and 19% from professional services.

Outlook

Our
  financial outlook for fiscal year 2006 is dependent on favorable economic conditions
  and the willingness of businesses to commit resources to implement new technologies.
  We believe that our BRMS strategy addresses an existing



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and
  increasing need for businesses to incorporate the ability to change business
  processes quickly into their organizations technological backbones and
  architecture. BRMS, as well as BPM, are key components of service-oriented architecture,
  hereafter SOA, strategies. SOA is a new design approach being promoted by IT
  research firms such as Forrester and Gartner and leading software vendors, including
  IBM, Microsoft and SAP. Our products provide this capability across business
  sectors, leading us to believe that we are well positioned to take advantage
  of any improvement in the technology investment climate. We are also relying
  on our co-selling and joint marketing relationships with companies such as FileNet,
  BEA and Oracle to help us expand our profile and create opportunities for us
  in the marketplace.

The
  Company, as with all global companies, faces a number of risk factors that could
  impact our ability to achieve our goals in fiscal year 2006. Those include increased
  competition, deferred purchases, changes in technology market conditions, the
  effectiveness of our sales and marketing activities, currency fluctuations as
  well as other factors. For a more detailed description of the specific risks
  which we believe to be material to our business operations, see Item 3.D
  Risk Factors.

Critical
  Accounting Policies

Revenue
  Recognition

The
  Companys revenue is derived from three primary sources: software license
  fees, maintenance fees and professional service fees, including consulting and
  training services.

The
  Company recognizes revenue from product licensing fees, whether sold directly
  or through distributors, when the product is delivered, the fee is fixed or
  determinable, evidence of an arrangement has been received, all significant
  contractual obligations have been satisfied and the resulting receivable is
  deemed collectible by management, in accordance with Statement of Position 97-2,
  Software Revenue Recognition (SOP 97-2), as amended
  by Statement of Position 98-4, Deferral of the Effective Date of a Provision
  of SOP 97-2 and Statement of Position 98-9, Modification of SOP
  97-2, Software Revenue Recognition, with Respect to Certain Transactions.
  If any of these criteria are not met, recognition of revenues is deferred until
  such time as all of the criteria are met.

Our
  software arrangements often include consulting and training services. Consulting
  revenues from these arrangements are generally accounted for separately from
  software license revenues as the services (1) are not essential to the functionality
  of the software license, (2) are available from other vendors, and (3) do not
  include significant modification or customization of the software. Revenues
  from time and material consulting services are recognized as the services are
  performed. Revenues from fixed price consulting services are recognized on a
  proportional performance basis.

When
  consulting services are considered essential to a software deliverable or the
  arrangement involves significant customization or modification of software,
  both the license and consulting service revenue under the arrangement are recognized
  under the percentage of completion method of contract accounting. Training revenue
  is recognized at the time service is performed.

Revenue
  from software maintenance agreements is recognized ratably over the arrangement
  period, which in most instances is for one year. Accordingly, deferred revenues
  consist principally of deferrals for invoiced maintenance services, not yet
  recognized as revenues.

In
  bundled software arrangements that include rights to multiple software products
  and/or services, the Company recognizes revenues using the residual method as
  prescribed by the Statement of Position 98-9 Modification of SOP No.
  97-2 Software Revenue Recognition with Respect to Certain Transactions.
  Under the residual method, revenues are allocated to the undelivered elements
  based on vendor specific objective evidence of fair value of the undelivered
  elements and the residual amount of revenues are allocated to the delivered
  elements. Vendor specific objective evidence of the fair value of maintenance
  contracts is based on renewal rates as determined by the prices paid by the
  Companys customers when maintenance is sold separately. Vendor specific
  objective evidence of fair value of training and consulting services is based
  upon daily rates as determined by the prices paid by the Companys customers
  when these services are sold separately.



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Our
  revenue recognition policy, as described above, is significant because revenue
  is a key component of our results from operations. In addition, revenue recognition
  determines the timing of certain expenses, such as incentive compensation. We
  follow very specific and detailed guidelines in measuring revenue; however,
  certain judgments and estimates affect the application of our revenue recognition
  policy. Revenue results are difficult to predict, and any shortfall in revenue
  or delay in recognizing revenue could cause our operating results to vary significantly
  from quarter to quarter and could result in operating losses.

Allowance
  for Doubtful Accounts

Our
  allowance for doubtful accounts is recorded as part of general and administrative
  expenses. These allowances, which are netted against accounts receivable on
  the consolidated balance sheets, totaled $0.7 million as of June 30, 2005, as
  compared to $0.6 million as of June 30, 2004. These estimates are based on our
  bad debt write-off experience, analysis of credit information, specific identification
  of probable bad debts based on our collection efforts, aging of accounts receivable
  and other known factors. Our actual results could differ from these estimates.

Use
  of Estimates

The
  preparation of the Consolidated Financial Statements in conformity with generally
  accepted accounting principles in the United States (U.S. GAAP)
  requires us to make estimates and assumptions that affect the reported amounts
  of assets and liabilities at the date of the financial statements and the reported
  amounts of revenues and expenses during the reporting period. Estimates are
  used for, but not limited to, application of our revenue recognition policy,
  allowance for uncollectible accounts receivable, useful lives for property and
  equipment and intangibles, employee benefits, and taxes. Actual results could
  differ materially from these estimates.

Goodwill

Goodwill
  represents the excess of purchase price over the fair value of identifiable
  net assets of businesses acquired. Goodwill is not amortized but instead tested
  at least annually for impairment, or more frequently when events or change in
  circumstances indicate that the asset might be impaired by comparing the carrying
  value to the fair value of the reporting unit to which it is assigned in accordance
  with FASB Statement No. 142, Goodwill and Other Intangible Assets.

Determining
  the fair value of a reporting unit is judgmental in nature and involves the
  use of significant estimates and assumptions. These estimates and assumptions
  include revenue growth rates and operating margins used to calculate projected
  future cash flows, risk-adjusted discount rates and future economic and market
  conditions. We base our fair value estimates on assumptions we believe to be
  reasonable but that are unpredictable and inherently uncertain. Actual future
  results may differ from those estimates. In addition, we make certain judgments
  and assumptions in allocating shared assets and liabilities to determine the
  carrying values for each of our reporting units. Our annual goodwill impairment
  analysis, which was performed during the fourth quarter of fiscal year 2005,
  did not result in an impairment charge.

For
  additional information regarding our significant accounting policies, see Note
  1 to Consolidated Financial Statements.

Non-GAAP
  Financial Measures

In
  this Annual Report on Form 20-F, we disclose selected figures that are non-GAAP
  financial measures. Under the rules of the SEC, a non-GAAP financial measure
  is a numerical measure of our historical or future financial performance, financial
  position or cash flows that excludes amounts, or is subject to adjustments that
  have the effect of excluding amounts, that are included in the most directly
  comparable measure calculated and presented in accordance with GAAP in our consolidated
  income statement, consolidated balance sheet or consolidated statement of cash
  flows; or includes amounts, or is subject to adjustments that have the effect
  of including amounts, that are excluded from the most directly comparable measure
  so calculated and presented. In this regard, GAAP refers to U.S. GAAP.



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Constant
  Currency Rates

In
  certain appropriate instances we compare revenues and expenses from one period
  to another period in this Annual Report on Form 20-F using constant currency
  rates. To present that information, current period results for entities reporting
  in currencies other than U.S. dollars are converted into U.S. dollars at the
  prior years exchange rates, rather than the exchange rates for fiscal
  year 2005. For example, if a French entity reporting in euros sold 1 million
  euros of products in each of fiscal year 2005 and fiscal year 2004, our financial
  statements would report $1.27 million of revenues in fiscal year 2005 (using
  1 euro = $1.27 which was the average exchange rate in fiscal year 2005) and
  $1.19 million in revenues in fiscal year 2004 (using 1 euro = $1.19 which was
  the average exchange rate in fiscal year 2004). The constant currency presentation
  would translate the fiscal year 2005 results using the fiscal year 2004 exchange
  rates and indicate that underlying revenues were flat and not increasing by
  $0.08 million as would be reported in the financial statements under U.S. GAAP.
  We present this constant currency information in order to assess how our underlying
  business performed before taking into account currency exchange fluctuations.
  We also present our actual reported results in order to provide the most directly
  comparable data under U.S. GAAP.

We
  use figures prepared on a constant currency basis both for our internal analysis
  and for our external communications, as we believe they provide suitable means
  by which to analyze and explain variations from one period to another. However,
  these figures provided on a constant currency basis are unaudited and are not
  measurements of performance under U.S. GAAP.

The
  following table sets out the estimated impact of changes in exchange rates for
  certain income statement figures disclosed in this Annual Report on Form 20-F
  both on an actual basis and on a constant currency basis for fiscal years ended
  June 30, 2005 and 2004:

|                                                | Year
        ended June 30 |  | 2005/2004               | 
|----------------------------------------------- | -------------------------- |  | ----------------------- | 
|                                                | 2005                       |  | 2004                    | 
|                                                | As
        reported        |  | Currency
        effect | 
|                                                | (in
        thousands)     |  |                         | 
|Revenues:                                       |                            |  |                         | 
|North
        America                           | $62,312                    |  | $                      | 
|Europe                                          | 50,958                     |  | (3,020)                 | 
|Asia                                            | 12,033                     |  | (387)                   | 
|Total
        revenues                          | 125,303                    |  | (3,407)                 | 
|Cost
        of revenues and operating expenses | 118,832                    |  | (4,442)                 | 
|Income
        from operations                  | $6,471                     |  | $1,035                  | 

The
  following table sets out the estimated impact of changes in exchange rates for
  certain income statement figures disclosed in this Annual Report on Form 20-F
  both on an actual basis and on a constant currency basis for fiscal years ended
  June 30, 2004 and 2003:

|                                                | Year
        ended June 30 |  | 2004/2003               |  
|----------------------------------------------- | -------------------------- |  | ----------------------- | -
|                                                | 2004                       |  | 2003                    |  
|                                                | As
        reported        |  | Currency
        effect |  
|                                                | (in
        thousands)     |  |                         |  
|Revenues:                                       |                            |  |                         |  
|North
        America                           | $53,369                    |  | $                      |  
|Europe                                          | 39,024                     |  | (4,485                  | )
|Asia                                            | 10,394                     |  | (466                    | )
|Total
        revenues                          | 102,787                    |  | (4,951                  | )
|Cost
        of revenues and operating expenses | 100,947                    |  | (6,927                  | )
|Income
        from operations                  | $1,840                     |  | $1,976                  |  



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A.

Operating
  Results

Revenues

Our
  total revenues increased to $125.3 million in fiscal year 2005, up from $102.8
  million in fiscal year 2004 and $92.2 million in fiscal year 2003, representing
  increases of 22% and 11%, respectively, year over year. Expressed at fiscal
  2004 constant currency rates, our fiscal year 2005 revenues increased by 19%,
  a lower growth rate that reflects the appreciation in the value of the euro
  against the U.S. dollar during the year and the fact that 34% of our revenues
  are in euros. See Non-GAAP Financial Measures. The growth
  in fiscal year 2005 primarily reflects good execution on both the European and
  North American markets, driven by continued penetration of our BRMS product
  line for business process applications and good activity of the visualization
  product line.

The
  growth in fiscal year 2004 primarily reflected good execution on the North American
  market with a continued penetration of the Rules product line for business process
  applications and a good optimization product line activity combined with the
  worldwide impact of the growing installed base of licenses on maintenance revenues.

Revenues
  by geography

Our
  North American revenues increased to $62.3 million in fiscal year 2005, from
  $53.4 million in fiscal year 2004 and $43.3 million in fiscal year 2003, representing
  50%, 52% and 47% of total revenues respectively. The 17% growth of our North
  American revenues in fiscal year 2005 over fiscal year 2004 is primarily driven
  by an increasing demand for our visualization and BRMS products, partially offset
  by reduced demand for our optimization products with lower royalty flows from
  ISVs. A significant increase of our professional services activity combined
  with the increase in maintenance revenues from the growing installed base of
  ILOG licenses has had a positive impact on North American revenue growth.

Our
  European revenues increased to $51.0 million in fiscal year 2005, up from $39.0
  million in fiscal year 2004 and $37.8 million in fiscal year 2003, representing
  40%, 38% and 41% of total revenues, respectively. Our European revenues increased
  by 31% in fiscal year 2005 over fiscal year 2004. Expressed at fiscal year 2004
  constant currency rates, European revenues increased by 23%. The increase in
  European revenues was primarily due to improved execution associated with an
  increasing number of new IT projects.  A significant increase in our professional
  services activity combined with the increase in maintenance revenues from the
  growing installed base of ILOG licensees has had a positive impact on European
  revenue growth.

Our
  Asian revenues increased to $12.0 million in fiscal year 2005, up from $10.4
  million in fiscal year 2004 and $11.1 million in fiscal year 2003, representing
  10%, 10% and 12% of total revenues, respectively. The 16% increase of Asian
  revenues in fiscal year 2005 over fiscal year 2004 is primarily due to the increasing
  adoption of our BRMS products in this region, especially in Japan. Our optimization
  products also contributed to the revenue growth in the manufacturing sector.
  Asian revenues suffered from weak business activity in the defense sector, which
  negatively impacted sales of our visualization products.

The
  23% increase in our North American revenues in fiscal year 2004 over fiscal
  year 2003 was primarily driven by an increasing demand for our optimization
  products from the manufacturing sector and for our business rules products from
  the financial services and transportation sectors.  The increase in maintenance
  revenues from the growing installed base of ILOG licensees combined with a moderate
  increase in consulting activities also had a positive impact on North American
  revenue growth.

The
  9% decrease at constant currency rates of our European revenues in fiscal year
  2004 over fiscal year 2003 reflected the significant decrease of an upfront
  payment by a large ISV in the third quarter and the generally weak business
  conditions encountered in Europe especially at the beginning of the fiscal year
  2004.



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The
  6% decrease in our Asian revenues in fiscal year 2004 over fiscal year 2003
  was primarily due to weak business activity in the region especially in the
  telecommunication sector, which negatively impacted our business rules activity.
  This resulted in a global decrease in revenue despite the increase in maintenance
  revenues from the growing installed base of ILOG licensees.

In
  fiscal years 2005, 2004 and 2003 SAP A.G., our largest customer, accounted for
  4%, 4% and 8% respectively of our total revenues. In fiscal year 2005 the next
  four largest customers accounted for approximately 6% of our total revenues,
  compared to 7% in fiscal year 2004, and the next five largest accounted for
  approximately 5% of our total revenues in fiscal year 2005, compared to 6% in
  fiscal year 2004. Revenues from a single customer in a particular quarter can
  materially affect our revenues and operating results for such period. See Item
  3.D.  Risk Factors1. Risks concerning our ability to achieve financial
  resultsOur quarterly operating results have fluctuated significantly,
  on a quarterly basis, and may continue to do so in the future. For a discussion
  of revenues received from certain related parties, see Major Shareholders
  and Related Party Transactions.

Gross
  Profit

The
  following table sets forth our revenues, cost of revenues and margin by revenue
  type :

|                                   |  | Year
        Ended June 30, | 
|---------------------------------- |  | --------------------------- | 
|                                   |  | 2005                        | 
|                                   |  | (in
        thousands)      | 
|Revenues:                          |  |                             | 
|License
        fees               |  | $67,707                     | 
|Maintenance                        |  | 34,158                      | 
|Professional
        services      |  | 23,438                      | 
|Total
        revenues             |  | $125,303                    | 
|                                   |  |                             | 
|Cost
        of revenues:          |  |                             | 
|License
        fees               |  | $1,031                      | 
|Maintenance                        |  | 3,870                       | 
|Professional
        services      |  | 19,782                      | 
|Total
        cost of revenues     |  | $24,683                     | 
|                                   |  |                             | 
|Margin:                            |  |                             | 
|License
        fees               |  | 98%                         | 
|Maintenance
        fees           |  | 89%                         | 
|Professional
        services fees |  | 16%                         | 
|Gross
        Margin               |  | 80%                         | 

License
  Fees. Our revenues from license fees increased to $67.7 million in fiscal
  year 2005, up from $58.2 million in fiscal year 2004 and $56.4 million in fiscal
  year 2003, representing increases of 16% and 3%, respectively. Due to an increasing
  adoption in most industry sectors, BRMS revenues increased by 29% in fiscal
  year 2005 over fiscal year 2004. Visualization revenues increased by 18% in
  fiscal year 2005 over fiscal year 2004 primarily due to the acquisition of the
  JLoox product in July 2004. Optimization revenues increased nominally by 2%
  in fiscal year 2005 over fiscal year 2004.   With an increasing demand
  from most industry sectors other than the telecommunications sector, Rules revenues
  increased by 4% in fiscal year 2004 over fiscal year 2003. The Optimization
  revenues increased by 4% in fiscal year 2004 over fiscal year 2003, despite
  the generally weak business conditions experienced on the supply chain management
  sector, while Visualization revenues stabilized with 1% increase in fiscal year
  2004 over fiscal year 2003. The revenue mix between our BRMS, optimization and
  visualization and other product lines was 44%, 31% and 25%, respectively, in
  the 2005 fiscal year, compared to 40%, 35% and 25%, respectively, in the 2004
  and 2003 fiscal years.



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Our
  margin for license fees has remained at 98% since fiscal year 2003. Our cost
  of license fees, consisting primarily of royalties to third parties, documentation,
  packaging and freight expenses, decreased to $1.0 million in fiscal year 2005
  from $1.1 million in fiscal year 2004 and as compared to $0.9 million in fiscal
  year 2003, representing 2% of revenues from license fees for each of the past
  three years. In the event we significantly increase the incorporation of third-party
  technology in our products, the payment of royalties may have the effect of
  lowering gross margins.

Maintenance.
  Maintenance services are typically available at an annual fee of 18% of the
  software price paid. Payments related to maintenance contracts are generally
  received in advance with revenues deferred and recognized ratably over the term
  of the maintenance agreement, which is typically 12 months. Our revenues from
  maintenance increased to $34.2 million in fiscal year 2005 from $27.6 million
  in fiscal year 2004 and from $21.4 million in fiscal year 2003. This represented
  increases of 24% and 29% over the respective prior years.  Our maintenance
  revenue growth during 2003 and 2004 was the result of our growing installed
  base of ILOG licensees, the strengthening of the euro and our improvement of
  the maintenance renewal process.  Maintenance revenues for the years ended
  June 30, 2005, 2004 and 2003 constituted 27%, 27% and 23% of total revenues,
  respectively. Our maintenance margin increased to 89% in fiscal year 2005, from
  87% in fiscal year 2004 and 84% in fiscal year 2003, reflecting the maintenance
  revenue growth while cost of maintenance remained level.

Professional
  Services. Our revenues from professional services consist of consulting
  and training. Professional services are billed on either a time and materials
  basis or a fixed price basis. Our revenues from professional services increased
  to $23.4 million in fiscal year 2005, up from $17.0 million in fiscal year 2004
  and from $14.4 million in fiscal year 2003. This represented increases of 38%
  and 18% over the respective prior years. Our professional services revenue growth
  in fiscal year 2005 was the result of a significant investment in the U.S. and
  in Europe in order to serve customers embedding our BRMS products within their
  applications.   Our professional services revenue growth in fiscal
  year 2004 was derived from important growth in Europe and in the U.S. partly
  offset by a major decrease in Asia where we faced weak business conditions.
  Professional services revenues for the years ended June 30, 2005, 2004 and 2003
  constituted 19%, 16% and 16% of total revenues, respectively. Our cost of professional
  services, consisting primarily of employee-related expenses, increased to $19.8
  million in fiscal year 2005, up from $14.1 million in fiscal year 2004 and $11.4
  million in fiscal year 2003, reflecting the increase in resources needed to
  support the increased professional services activity. The need for professional
  services by our customers to facilitate their adoption of our products and our
  ability to satisfy the demand for such services frequently has a direct impact
  on our ability to generate license fees. Our professional services margin decreased
  to 16% in fiscal year 2005, from 17% in fiscal year 2004 and 20% in fiscal year
  2003 as a result of these ongoing investments in additional staffing. In addition,
  the margin was negatively impacted by deferred revenues for long-term projects
  for which revenues will be recorded upon successful completion of the engagements.

Operating
  Expenses

Marketing
  and Selling. Our marketing and selling expenses consist primarily of salaries
  and other payroll related expenses, incentive compensation, promotional marketing
  activities, customer pre-sales, technical support and overhead costs relating
  to occupancy. Our marketing and selling expenses increased to $53.4 million
  in fiscal year 2005 from $48.8 million in fiscal year 2004 and from $46.4
  million in fiscal year 2003, representing 43%, 47% and 50% of total revenues,
  respectively. The decrease of our marketing and selling expenses as a percentage
  of total revenues in fiscal year 2005 over fiscal year 2004 benefited from the
  22% total revenue increase while marketing and selling expenses only increased
  by 9%.  The decrease of our marketing and selling expenses as a percentage
  of total revenues in fiscal year 2004 over fiscal year 2003 was attributable
  to an 11% revenue increase, while marketing and selling expenses only increased
  by 5%.  This reflected budget restrictions imposed by ILOG management which
  resulted in a headcount reduction and other savings. At June 30, 2003, 2004
  and 2005 our marketing and selling headcount were 264, 250 and 256 persons,
  respectively.

Research
  and Development. Our research and development expenses consist principally
  of personnel costs, overhead costs relating to occupancy, equipment depreciation
  and travel, less amounts received from French government agencies and the European
  Union in the form of grants which reduce our cost of certain specific research
  and development projects. This financial support is recorded as a reduction
  of research and development expenses in the periods the projects are undertaken,
  the related expenses are incurred and the funding has been committed by the
  public institutions.



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The
  following table sets forth our research and development expenses and the amounts
  of government funding for fiscal year 2005, fiscal year 2004 and fiscal year
  2003:

|                                                          |  | Year
        Ended June 30, |  
|--------------------------------------------------------- |  | --------------------------- | -
|                                                          |  | 2005                        |  
|                                                          |  | (in
        thousands)      |  
|Gross
        research and development expenses           |  | $27,748                     |  
|Less
        government funding.                          |  | (524                        | )
|Research
        and development expenses, net of funding |  | $27,224                     |  

Our
  research and development expenses, net of government funding, increased to $27.2
  million in fiscal year 2005 from $22.8 million in fiscal year 2004 and from
  $18.9 million in fiscal year 2003, representing 22%, 22% and 20% of total revenues,
  respectively. The 19% increase in our research and development expenses in fiscal
  year 2005 over fiscal year 2004 is primarily attributable to the strengthening
  of the euro against the U.S. dollar and some additional headcount hired in the
  2005 fiscal year. The 21% increase in fiscal year 2004 over fiscal year 2003
  was also primarily attributable to the strengthening of the euro against the
  U.S. dollar and additional headcount. From June 30, 2003 to June 30, 2005 our
  research and development headcount increased from 151 to 175 employees. We have
  not capitalized any software development costs, except certain products under
  development which are licensed from third parties. In fiscal year 2005 and fiscal
  year 2004 software licensed from third parties was not material. Research and
  development costs are generally expensed as incurred. See C. Research
  and Development.

General
  and Administrative. Our general and administrative expenses consist primarily
  of personnel and related overhead costs for finance, legal and general management.
  General and administrative expenses increased to $13.6 million in fiscal year
  2005 from $10.7 million in fiscal year 2004 and from $8.8 million in fiscal
  year 2003, representing 11% of total revenues for fiscal year 2005 and 10% of
  total revenues for fiscal years 2004 and 2003. The 26% increase in general and
  administrative expenses in fiscal year 2005 over fiscal year 2004 and 22% increase
  in general and administrative expenses in fiscal year 2004 over fiscal year
  2003 are primarily due to the strengthening of the euro against the U.S. dollar
  and additional expenses required to strengthen the administrative departments
  of the Company. From June 30, 2003 to June 30, 2005, the number of our employees
  engaged in general and administrative functions increased from 84 to 86 employees.

Net
  Interest Income and Other

Net
  interest income and other includes foreign exchange gains and losses, net interest
  income and other impairment charges. Net interest income and other totaled $0.9
  million, $0.9 million and $0.6 million in fiscal year 2005, fiscal year 2004
  and fiscal year 2003, respectively. Other charges recorded include the impairment
  charge in fiscal year 2005 of our investment in Temposoft for an amount of $0.2
  million.

Income
  Taxes

We
  account for income taxes in accordance with Statement of Financial Accounting
  Standards No. 109 (SFAS 109), Accounting for Income Taxes.

Our
  income tax expense in fiscal year 2005, fiscal year 2004 and fiscal year 2003
  was $0.7 million, $1.1 million and $1.4 million, respectively, reflecting tax
  charges in certain European and Asian sales subsidiaries that have been profitable
  in those years, as well as withholding taxes incurred in Asia. The lower expense
  in fiscal year 2005 is due to the recording of a $0.5 million French tax credit
  relating to research costs incurred in calendar year 2004. The final tax credit
  will be claimed in October 2005.

At
  June 30, 2005, we had net operating loss carryforwards from various tax jurisdictions
  of approximately $89.5 million, of which $33.3 million and $3.3 million were
  in France and the U.K., respectively, with no expiration date and $52.9 million
  were in the U.S. (Federal and State of California) expiring between 2006 and
  2025 if not utilized. Pursuant to



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the
  U.S. Internal Revenue Code, use of the U.S. net operating loss carryforwards
  may be limited if a cumulative change in ownership of more than 50% occurs within
  any three-year period. As of June 30, 2005, a valuation allowance of $28.3 million
  was provided against total deferred tax assets of $28.5 million, which consists
  primarily of the tax benefit of net operating loss carryforwards. See Note 12
  to Consolidated Financial Statements.

Currency
  Fluctuations

We
  operate on a multinational basis and a significant portion of our business is
  conducted in currencies other than the U.S. dollar, which is our financial reporting
  currency for Consolidated Financial Statements included herein. A significant
  portion of our revenues and expenses are denominated in euros, and the remainder
  in U.S. dollars and other currencies. Fluctuations in the value of the currencies
  in which we conduct our business relative to the U.S. dollar have caused and
  will continue to cause dollar-translated amounts to vary from one period to
  another.

Also,
  currency exchange rate movements of foreign currency denominated receivables
  and payables recorded by the Company and each of its subsidiaries, including
  their respective intercompany accounts, result in the reporting of realized
  and unrealized exchange gains or losses in our income statement. In order to
  mitigate the impact of exchange rate fluctuations, we enter into foreign exchange
  derivative financial instruments to protect against foreign currency rate improvements
  relative to the euro for anticipated cash flows from transactions between the
  Company and its subsidiaries. Due to the number of currencies involved, the
  constantly changing currency exposures and the volatility of currency exchange
  rates, we cannot predict the effect of exchange rate fluctuations on future
  operating results.

Under
  our accounting policy for foreign currency translation, our results and the
  results of each of our subsidiaries are measured in the currency in which the
  entity primarily conducts its business (the functional currency). The functional
  currencies of ILOG and our subsidiaries are their respective local currencies
  in accordance with Statement of Financial Accounting Standard No. 52, Foreign
  Currency Translation. All assets and liabilities in the balance sheets
  of entities whose functional currency is not the U.S. dollar are translated
  into U.S. dollar equivalents at exchange rates as follows: (i) asset and
  liability accounts at year-end rates; and (ii) income statement accounts at
  the respective monthly average exchange rates. Translation gains or losses are
  recorded in shareholders equity, and transaction gains and losses are
  reflected in net income (loss). Our net foreign currency transaction exchange
  loss for fiscal year 2005 was $0.1 million as compared to a net exchange gain
  of $0.5 million for fiscal year 2004 and a loss of $0.1 million for fiscal year
  2003. These amounts represent both realized and unrealized gains or losses from
  transactions or balance sheet items. See Notes 1 and 4 to the Consolidated Financial
  Statements. See Item 3.D.  Risk Factors2. Risks that could
  adversely affect our business operationsCurrency fluctuations could result
  in lower profitability for us in U.S. dollar terms and the reporting of exchange
  losses.

B.

Liquidity
  and Capital Resources

Over
  the last three years, we have financed our operations and investments in property
  and capital equipment through cash from operations and the issuance of equity
  securities to employees under our stock option and stock purchase plans.

As
  of June 30, 2005, we had cash and cash equivalents of $61.7 million and no short-term
  investments. As of June 30, 2004, we had cash, cash equivalents and short-term
  investments of $52.2 million. As of June 30, 2005 and 2004, our net working
  capital was $50.9 million and $44.6 million, respectively. The Company has historically
  accounted for certain investments, known as monetary Société dInvestissement
  A Capital Variable (SICAV) and Fonds Commun de Placement (FCP), as
  cash and cash equivalents. Our short-term investments of $22.1 million
  at the end of fiscal year 2004, have been reclassified from cash and cash equivalents
  to short term investments in the fiscal year 2005 Consolidated Financial Statements.
  See Note 1 Reclassification to the Consolidated Financial Statements
  for a detailed explanation.

The
  net cash increase of $31.7 million in fiscal year 2005 compared to fiscal year
  2004 was primarily due to cash flows from the sale of our short term investments
  in the amount of $22.3 million and cash flows from operating activities in the
  amount of $13.1 million.



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Our
  operating activities provided cash flows of $13.1 million, $8.1 million and
  $6.3 million in fiscal year 2005, fiscal year 2004 and fiscal year 2003, respectively.
  This continuous increase is explained by the improvement of our profitability
  as well as increases in working capital. For the fiscal year 2005, our working
  capital increased by 14% compared to fiscal year 2004 while our revenues increased
  by 22% during the same period.  Accounts receivable aging as of June 30,
  2005 decreased to 63 days sales outstanding, as opposed to 82 days as of June
  30, 2004 due to a concentrated effort on collections.

Aside
  from the investment in and sale of short term investments, our investing activities
  have consisted primarily of expenditure on fixed and intangible assets, which
  totaled $2.6 million, $1.5 million and $1.8 million in fiscal years 2005, 2004
  and 2003, respectively. The level of our expenditures increased in fiscal year
  2005 because of the purchase of the JLoox assets for $1.8 million in cash.  We
  also purchased 12.5% of the South Korean company RTO for $0.5 million in cash
  in the 2005 fiscal year.  As of June 30, 2005 fixed assets were located
  in the United States, France, other European countries and Asia with net book
  values of $1.4 million, $4.9 million, $0.4 million and $0.4 million, respectively.
  Our fixed assets are generally unencumbered.

Our
  net financing activities provided $2.0 million in fiscal year 2005, $3.1 million
  in fiscal year 2004, and $0.4 million in fiscal year 2003. Out of this net amount,
  $3.3 million, $3.7 million and $1.0 million were provided from the issuance
  of shares under employee stock option and stock purchase plans, $0.6 million
  in fiscal years 2005, 2004 and 2003 were used to repay capitalized lease obligations,
  and in fiscal year 2005, $0.7 million was used for the first time to purchase
  ILOG shares pursuant to a share buyback program.

We
  believe we currently have sufficient working capital to meet our current requirements
  for the twelve months following the date of this Annual Report.

C.

Research
  and Development

We
  have committed, and expect to continue to commit in the future, substantial
  resources to research and development. During fiscal year 2005, fiscal year
  2004 and fiscal year 2003, our net research and development expenses were $27.2
  million, $22.8 million, and $18.9 million. Our gross research and development
  expenses before the offset of funding provided by the European Union and agencies
  of the French government were $27.7 million, $23.3 million and $19.5 million
  in fiscal year 2005, fiscal year 2004 and fiscal year 2003 respectively.

Since
  we were founded, we have maintained a research and development focus on the
  solution of complex problems using object oriented technology. This focus requires
  the fusion of different programming cultures, including object oriented developers,
  who tend to be attracted by high-level modeling, and developers working on complex
  algorithms, which tend to focus on math oriented code. This ILOG culture has
  arisen from eighteen years of day-to-day development, algorithmic optimization
  and object oriented design. Our engineers work with customers to try to ensure
  that their problems are solved efficiently. Our engineers also interact closely
  with the scientific and academic communities, which we believe is the best way
  to obtain and maintain high performance algorithms.

D.

Trend
  Information

For
  fiscal year 2006 our performance will be dependent on favorable economic conditions
  and a favorable investment climate. With a growing installed based of customers,
  a proven and recognized portfolio of technologies, and a leading position in
  the areas of software components, optimization and business rules management,
  we believe that we are well positioned in the software market.

Our
  business rules products (combined license and maintenance revenues) grew by
  32% in fiscal year 2005 after a fiscal year 2004 increase of 14% and now comprise
  approximately 40% of our license and maintenance revenues. A benefit unique
  to our BRMS products is that they create flexible software architectures by
  allowing portions of software code, the business rules or business logic, to
  be maintained by business users instead of software professionals. We believe
  that by implementing ILOG BRMS across an enterprise, organizations can quickly
  address specific business process changes, and be proactive in response to changing
  business, regulatory and environmental conditions. We are targeting to



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meet
  the demand for business rule technology as a key enabler of agility and business
  process automation across the enterprise. Our customers are part of a growing
  trend of large organizations worldwide that are looking at BRMS, as well as
  BPM, as key components of SOA strategies. SOA is a new design approach being
  promoted by IT research firms such as Forrester and Gartner, and leading software
  vendors, including IBM, Microsoft and SAP.

E.

Off-balance
  Sheet Arrangements

We
  had no off-balance sheet arrangements as of June 30, 2005.

F.

Contractual
  Obligations

The
  following table sets forth contracted payment obligations for the fiscal years
  indicated (in thousands):

|                                                      |  |                                                                                |       |         |                  |        |           |        |           |        |           |       
|----------------------------------------------------- |  | ------------------------------------------------------------------------------ | ----- | ------- | ---------------- | ------ | --------- | ------ | --------- | ------ | --------- | ------
|                                                      |  | See
        notes
        to Consolidated
        Financial
        Statements |       |         |                  |        |           |        |           |        |           |       
|                                                      |  |                                                                                |       |         | June
        30,
|                                                      |  |                                                                                | Total |         | 2006             |        | 2007-2008 |        | 2009-2010 |        | 2011-2013
|Contracted
        obligations:                       |  |                                                                                |       |         |                  |        |           |        |           |        |           |       
|Operating
        leases                              |  | 13                                                                             |       | $14,737 |                  | $4,154 |           | $5,157 |           | $2,392 |           | $3,034
|Capitalized
        leases                            |  | 7                                                                              |       | 817     |                  | 448    |           | 369    |           |       |           |      
|Foreign
        currency forward and option contracts |  | 4                                                                              |       | 7,844   |                  | 7,844  |           |       |           |       |           |      

As
  of June 30, 2005, the Company had not granted any guarantees, nor pledged any
  of its assets and did not have any significant purchase obligations or other
  long-term liabilities, except as listed above.

The
  Company provides retirement benefits under the French defined benefit plan which
  is not funded, see also Note 8. No significant payment is expected over
  the next five years.

Item
  6.

Directors,
  Senior Management and Employees

A.

Directors
  and Senior Management

In
  accordance with French law governing a société anonyme, ILOGs
  affairs are managed by our Board of Directors and by our Chairman and Chief
  Executive Officer, who has full executive authority to manage our business.
  The Chairman and Chief Executive Officer, under French law, has the broadest
  powers to act on behalf of ILOG and to represent us in dealings with third parties,
  subject only to those powers expressly reserved by law and our statutsor
  charter, to the Board of Directors or general shareholders meetings. The Chief
  Executive Officer is in charge of implementing the goals, strategies and budgets
  of ILOG, which are determined by the Board of Directors. The Board of Directors
  has the power to appoint and remove, at any time, the Chairman and Chief Executive
  Officer. The French law gives to the Board of Directors the right to elect one
  person to assume the position of Chairman and Chief Executive Officer or to
  split the function between two different persons (the Chairman of the Board
  and another natural person bearing the title of Chief Executive Officer, or
  Directeur Général). We adopted a resolution to
  amend our statuts to provide for one person to assume the position of
  Chairman and Chief Executive Officer at the general shareholders meeting
  held on December 18, 2001 and at its meeting held on the same day, the Board
  of Directors opted for this option as well (Chairman and CEO, as opposed to
  General Manager), and appointed Mr. Pierre Haren as both Chairman and Chief
  Executive Officer. Our statuts provide that the Board of Directors could
  not change its decision to cumulate or to split these duties in the three year
  period following this decision. Pursuant to French law and our statuts,
  the Board of Directors can appoint up to five Directeurs Généraux
  Délégués (Deputy Chief Executive Officers), whose
  powers and responsibilities are determined by the Board together with the Chief
  Executive Officer, and who have broad powers to represent and bind us in dealings
  with third parties. The Directeur Général Délégué may
  be held individually responsible for his/her actions if they are deemed contrary
  to our interests. Pursuant to the French Law, if the function of Chairman and
  Chief Executive Officer is split between two different persons, the right to
  propose to the Board the appointment of one or several Deputy Chief Executive
  Officers belongs to the Chief Executive Officer. On January 20, 2003, the Board
  of Directors approved Bounthara Ing as a Directeur Général



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Délégué
  or Deputy Chief Executive Officer.

The
  following table sets forth the names, ages and positions of the Directors and
  executive officers of ILOG as of August 31, 2005:

|Name                            |  | Age |  | Position
        with the Company                                    
|------------------------------- |  | --- |  | ---------------------------------------------------------------------
|Pierre
        Haren            |  | 52  |  | Chairman
        and Chief Executive Officer                         
|Bounthara
        Ing           |  | 42  |  | Chief
        Operating Officer and Deputy Chief Executive Officer   
|Jean-François
        Abramatic |  | 56  |  | Chief
        Product Officer and President, Technical Advisory Board
|Jérôme
        Arnaud           |  | 38  |  | Chief
        Financial Officer                                      
|Christian
        Deutsch       |  | 60  |  | Chief
        Quality Officer                                        
|Michel
        Alard            |  | 51  |  | Director                                                             
|Marie-Claude
        Bernal     |  | 58  |  | Director                                                             
|Pascal
        Brandys          |  | 46  |  | Director                                                             
|Marc
        Fourrier           |  | 51  |  | Director                                                             
|Richard
        Liebhaber       |  | 70  |  | Director                                                             
|Todd
        Lowe               |  | 49  |  | Director                                                             
|Thomas
        Weatherford      |  | 59  |  | Director                                                             

For
  the purposes of this Annual Report on Form 20-F, executive officers
  means the Chief Executive Officer, the Deputy Chief Executive Officer, the Chief
  Product Officer, the Chief Financial Officer and the Chief Quality Officer.
  Where French law is applicable, the executive officers are not entitled, except
  for the Chief Executive Officer and the Deputy Chief Executive Officer, to represent
  the Company toward third party transactions. The Chief Executive Officer and
  the Deputy Chief Executive Officer may however delegate some of their powers
  to other individuals and notably to other executive officers of the Company.

Pierre
  Haren is one of our founders and was our Managing Director from 1987 to
  December 1995, when he was appointed Chairman and Chief Executive Officer of
  the Company. Prior to founding ILOG, Dr. Haren spent four years in charge of
  the SMECI Expert System Shell Project with the Institut National de Recherche
  en Informatique et en Automatique (INRIA) following a three-year
  term directing the research department of the French Ministry of the Sea. He
  is also a Director of MiddleNext (an association of mid-cap companies listed
  on Euronext Paris), Ecole Nationale des Ponts et Chaussées, Fondation
  de lEcole Polytechnique and he is a scientific advisor to the President
  of INRIA, a member of the French Académie des Technologies, a member
  of the Deans Council of the Kennedy School of Government at Harvard University
  and a member of the MIT Corporation Visiting Committee for the Department of
  Civil and Environmental Engineering. Dr. Haren received engineering degrees
  from Ecole Polytechnique in 1976 and Ecole Nationale des Ponts et
  Chaussées in 1978. He received his M.S. from Massachusetts Institute
  of Technology (MIT) in 1978 and Ph.D. from MIT in Civil Engineering
  in 1980. Dr. Harens term on the Board of Directors expires at the Ordinary
  Shareholders Meeting scheduled to take place on November 29, 2005, and
  will be submitted for renewal for a further three year term.

Bounthara
  Ing has served as our Chief Operating Officer since April 2002, and as our
  Deputy Chief Executive Officer since January 2003. He was our Vice President
  and General Manager, Industry Solutions Division from July 1999 to April 2002,
  and has been President of ILOG Ltd. (Japan) since September 1997, and Managing
  Director of ILOG (Pte.) Ltd. (Singapore) since January 1994. He joined us in
  1988 as a software developer and in 1992, became the Director of Graphic Development.
  Previously, Mr. Ing was a software engineer at Compagnie Générale
  dInformatique in Paris, France, and at European Computer Research
  Center in Munich, Germany. Mr. Ing received an Engineering degree from Ecole
  Centrale de Paris in 1986.

Jean-François
  Abramatic has served as our Chief Product Officer since February 2003. From
  July 2000 to February 2003 he was our Senior Vice President, Research and Development.
  He was a Director of ILOG S.A. from December 1994 to July 2000. From September
  1996 to December 2001, Dr. Abramatic was the Chairman of the International World
  Wide Web Consortium and from September 1996 to September 1997 he was an Associate
  Director of the MIT Laboratory of Computer Science. Dr. Abramatic has been appointed
  as a member of the Advisory Board of the World Wide Web Consortium on July 1,
  2004. From September 1997 to July 2000, Dr. Abramatic was INRIAs Director
  of Development and Industrial Relations and from 1992 to September 1997 its
  Director of Development. Dr. Abramatic received an Engineering degree from Ecole
  des Mines, Nancy in 1971 and a Ph.D. from the University of Paris VI in
  1980.



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Jérôme
  Arnaud has served as our Chief Financial Officer since January 2004. He
  was previously ILOGs Group Controller since 2000. He served as Audit Manager,
  then Senior Manager at Price Waterhouse in Lyon, Paris and New York from 1990
  to 1999. He then served as Director of the Financial Reporting at Ansaldo Signal
  NV until joining ILOG. Mr. Arnaud graduated from Ecole Supérieure
  de Commerce de Lille in 1990.

Christian
  Deutsch has served as ILOGs Chief Quality Officer since December 2003.
  Mr. Deutsch was previously Vice President and General Manager of European sales,
  General Manager of the former Value Chain Management business division, Vice
  President of Operations, Director of strategic partnerships and Program Director
  for ILOG Professional Services. Prior to joining ILOG in 1998, Mr. Deutsch served
  as co-Chief Executive Officer of OPEFORM, an IT solutions company in the transportation
  industry. Mr. Deutsch also held the position of Chief Technology Officer at
  ERAAM, an IT services provider, which was later acquired by Lockheed Martin.
  From 1973 to 1983, Mr. Deutsch held the positions of researcher and professor
  of mathematics at Paris University. He was also a member of several professional
  societies, including IALA, UNIDO and IMO. Mr. Deutsch earned doctoral and masters
  degrees in mathematics from the University of Paris in 1972.

Michel
  Alard has served as a Director since July 2000. Mr. Alard is Chairman of
  the Board of Directors of Wavecom S.A., which he co-founded in 1993. Previously
  from 1988 he was a project manager at Matra Communications. Mr. Alard received
  degrees from Ecole Polytechnique in 1976 and from the Ecole Nationale Supérieure
  des Télécommunications in 1978. Mr. Alards term on the Board
  of Directors expires in 2006.

Marie-Claude
  Bernal has served as a Director since December 2000. From 1979 until December
  2000 she worked in Boston for Wellington Management Company, where she was a
  senior vice president, partner and international equity portfolio manager. She
  is also President of the Supervisory Board of Esker S.A. Ms. Bernal graduated
  valedictorian from Frances Haut Enseignement Commercial pour les Jeunes
  Filles, with a major in finance and accounting in 1967 and received an M.B.A.
  from the University of Chicago in finance and computer science in 1971. Ms.
  Bernals term on the Board of Directors expires at the Ordinary Shareholders
  Meeting scheduled to take place on November 29, 2005 and will be submitted for
  renewal at that time for a further three year term.

Pascal
  Brandys has served as a Director since September 1998. Mr. Brandys is the
  President of Biobank, a global life sciences investment company he co-founded
  in 2000. Previously Mr. Brandys was the Chairman of the Board of Directors and
  Chief Executive Officer of Genset S.A., which he co-founded in 1989. Mr. Brandys
  is a Director of Ceres Inc. and several private biotechnology companies. Mr.
  Brandys graduated from the Ecole Polytechnique in 1980, received an M.S.
  in Economic Systems from Stanford University in 1982 and an M.S. in Civil Engineering
  from the Ecole Nationale des Ponts et Chaussées in 1983. Mr. Brandyss
  term on the Board of Directors expires in 2006.

Marc
  Fourrier has served as a Director since April 1987. Mr. Fourrier is President
  of Delphis, a holding company that specializes in the creation and development
  of companies. From 1988 to June 1997, Mr. Fourrier was a principal of Cleversys
  S.A., a consulting firm which specialized in information technology. He is also
  a Director of Wavecom S.A. Mr. Fourrier received engineering degrees from
  Ecole Polytechnique in 1976 and Ecole Nationale des Ponts et Chaussées
  in 1978, and an M.S. from MIT in 1978. Mr. Fourriers term on the Board
  of Directors expires in 2007.

Richard
  Liebhaber has served as a Director since December 2000. From 1995 to 2000
  he served on the board of Qwest Communications and from 1985 until 1995 he served
  as a board member and management committee member at MCI Communications. From
  1954 through 1985 Mr. Liebhaber worked at IBM, where he served in a number of
  positions. He is also a Director of JDS Uniphase and Avici Systems. He graduated
  from New York University with a BSEE in 1954. Mr. Liebhabers term on the
  Board of Directors expires in 2006.

Todd
  Lowe has served as a Director since August 1997, and served as our Executive
  Vice President until April 2002. From 1988 until 1997 he was President of CPLEX
  Optimization, Inc., a company acquired by ILOG during 1997. Mr. Lowe is a principal
  in several privately held companies. He received a Chemical Engineering degree
  from the University of California. He is a registered professional engineer
  and formerly held various management positions with Shell Oil and Chemical Company.
  Mr. Lowes term on the Board of Directors expires in 2006. He is married
  to Janet Lowe, our Vice President, ILOG Special Projects.



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Thomas
  Weatherford has served as a Director since December 2002. From August 1997
  to December 2002 he was Executive Vice-President and Chief Financial Officer
  of Business Objects S.A. Previously from January 1996 to August 1997, he was
  Chief Financial Officer of NETCOM On-Line Communication Services, Inc., and
  from February 1994 to December 1995 he served as Chief Financial Officer of
  Logitech, Inc. He has also held senior financial positions at Texas Instruments,
  Schlumberger and Tandem Computers. He is also a Director of Advanced Analogic
  Technologies, Inc., Saba Software, Inc., Tesco Corporation and Synplicity, Inc.
  Mr. Weatherford received a Bachelor of Business Administration (BBA) from the
  University of Houston in 1970. Mr. Weatherfords term on the Board of Directors
  expires at the Ordinary Shareholders Meeting scheduled to take place on
  November 29, 2005, and will be submitted for renewal at that time for a further
  three year term.

Pursuant
  to French law, each of ILOGs Directors, CEO and Deputy CEO shall not concurrently
  hold more than five director or executive officer mandates including the mandate
  of ILOG in companies having their registered office in France. However, this
  shall not apply to mandates in companies which are controlled (as defined in
  by article L.233-16 of the French Commercial Code) by the company of which that
  individual is a Director.

Technical
  Advisory Board

Since
  December 2000 we have had a Technical Advisory Board (TAB) consisting
  of a select group of industry and academic leaders, designed to strengthen our
  links with the technical and research communities as well as stimulate our corporate
  awareness of fundamental technology issues and developments. Key technologies
  represented by the TAB included: business rules and agent technologies; constraint
  programming; mathematical programming/optimization; visualization; and the world
  wide web. The TAB met twice a year for two days until January 2004, with each
  day devoted to a specific technology-based topic and discussion on its applicability
  to ILOGs long term vision and market focus. No meeting of the TAB was
  organized in fiscal year 2005, and a last meeting is planned for fiscal year
  2006. The Company believes that it currently has sufficient links with the technical
  and research communities due to its influence on the technological environment
  and its regular communications with academic and business leaders.

In
  fiscal year 2005, no warrants were granted to or exercised by the five non-ILOG
  employee TAB members who were granted warrants in the 2004 fiscal year.

The
  following table sets forth the names, ages and positions held within or outside
  ILOG by the TAB members as of August 31, 2005:

|Name                            |  | Age |  | Position                                                                    
|------------------------------- |  | --- |  | ----------------------------------------------------------------------------
|Jean-François
        Abramatic |  | 56  |  | President,
        Technical Advisory Board, and Chief Product Officer, ILOG
|Patrick
        Albert          |  | 49  |  | Technology
        Fellow, ILOG                                             
|Robert
        Bixby            |  | 60  |  | Chief
        Science Officer, ILOG                                         
|Eugene
        Freuder          |  | 60  |  | Professor,
        University College, Cork, Ireland                        
|Martin
        Grötschel        |  | 57  |  | Professor,
        Technische Universität Berlin                            
|Gilles
        Kahn             |  | 59  |  | President,
        INRIA                                                    
|Ora
        Lassila             |  | 42  |  | Research
        Fellow, Nokia Research Center                              
|Ben
        Shneiderman         |  | 58  |  | Professor,
        University of Maryland                                   

Patrick
  Albert has served as Technology Fellow of the Company since September 2002,
  having been our Chief Technology Officer from July 1996 to September 2002 and
  having previously held the position of Vice President of Research and Development
  since 1990. Mr. Albert was head of the Expert System Shell Department of Groupe
  Bull prior to joining the Company in 1987. Mr. Albert received a Master of Science
  degree in Information Technology from the University of Paris VII in 1982.

Robert
  Bixby has served as our Chief Science Officer since December 2002 and was
  President of the TAB from December 2000 to July 2003. From August 1997 to December
  2002 he served as Technology Fellow. Dr. Bixby co-founded in 1988 CPLEX Optimization,
  Inc., which was acquired by ILOG in 1997. He served on ILOGs Board of
  Directors from 1997 to 2000. He is a Research Professor at the Department of
  Computational and Applied Mathematics of Rice University and Noah Harding Professor
  Emeritus. Dr. Bixby earned a BS from the University of California-Berkeley and
  a Ph.D. from Cornell University. He has held academic positions at Cornell,
  the University of Kentucky, the University of Wisconsin-Madison, Northwestern
  University, the Institut for Operations Research-Bonn, the Institute for Mathematics
  of the Universität



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Augsburg,
  the Konrad-Zuse-Zentrum für Informationstechnik and the Technische
  Universität Berlin. Dr. Bixby is chairman of the Mathematical Programming
  Society and is a member of the National Academy of Engineering.

Eugene
  Freuder is a Science Foundation Ireland Research Professor at University
  College Cork in Ireland, and Director of the Cork Constraint Computation Centre.
  Dr. Freuder earned a BA from Harvard and a Ph.D. from MIT. He is a fellow of
  the American Association for Artificial Intelligence. Dr. Freuder is the Editor-in-Chief
  of the journal Constraints and executive chair of the organizing committee of
  the International Conference on Principles and Practice of Constraint Programming.
  He is the senior technical advisor of Ecora, and a member of the Technical Advisory
  Board of Celcorp.

Martin
  Grötschel is Vice President at the Konrad-Zuse-Zentrum für
  Informationstechnik and a Professor at the Department of Mathematics, Technische
  Universität Berlin. Dr. Grötschel studied mathematics and economics
  in Bochum and earned a Ph.D. and Habilitation in Bonn. He is a member of the
  Berlin-Brandenburg Academy of Sciences and Humanities. He is an honorary member
  of the German Mathematical Society and served as its president from 1993 to
  1994, and is a foreign associate of the National Academy of Engineering.

Gilles
  Kahn has served as President of INRIA since May 2004. He was previously
  Vice President for Science at INRIA. Dr. Kahn graduated from the Ecole Polytechnique.
  He is or has been a member of various scientific advisory boards, including
  IRISA, IMAG, LABRI, LRI, Ecole Normale Supérieure (ENS), LIX, CERMICS,
  Greco Calcul Formel, UNU-IIST, CWI Amsterdam, the Franco-Chinese Computer Science
  Laboratory, the Cambridge Microsoft Research Center and LORIA. Dr. Kahn
  is a member of the French Academy of Sciences, and of the Academia Europaea.

Ora
  Lassila is a Research Fellow at the Nokia Research Center. He has been a
  member of the Advisory Board of the World Wide Web Consortium (W3C) since 1998,
  and represented Nokia in the W3C Advisory Committee from 1998 to 2002. From
  1996 to 1997 he was a Visiting Scientist at MIT Laboratory for Computer Science,
  working with W3C and launched the Resource Description Framework (RDF) standard.
  His previous positions included Project Manager at the Robotics Institute of
  Carnegie Mellon University and Research Scientist at the CS Laboratory of Helsinki
  University of Technology.

Ben
  Shneiderman is Professor at the Department of Computer Science, University
  of Maryland-College Park. Dr. Shneiderman earned his Ph.D. at the State University
  of New York-Stony Brook. He is the founding director of the Human-Computer Interaction
  Laboratory, and a member of the Institute for Advanced Computer Studies and
  the Institute for Systems Research, both at the University of Maryland-College
  Park. He is also a fellow of the ACM and the AAAS, was co-chair of the ACM Policy98
  Conference, and is founding chair of the ACM Conference on Universal Usability.

B.

Compensation

The
  aggregate amount of all compensation paid, and benefits in kind granted, comprising
  of salary, commissions, bonus and benefits and gains, to all our executive officers
  as a group (5 persons) for services in all capacities for the year ended June
  30, 2005, was approximately $2.3 million. Our Chairman of the Board of Directors
  and his Deputy Chief Executive Officer, Dr. Haren and Mr. Ing’s individual
  compensation was €511,000 (or $650,000) and $445,000,  respectively,
  in the year ended June 30, 2005.

In
  consideration for their services on the Board, Directors are entitled to receive
  jetons de présence (directors fees). In accordance
  with French law, the total annual amount of jetons de présence is
  fixed by the General shareholders Meeting. The Board of Directors then
  has full and discretionary authority to decide the allocation of the Directors
  fees authorized by the shareholders among its members, depending on the Directors
  participation in the meetings of the Board of Directors and the Boards
  Committees, of which they are members. In addition, remuneration may be granted
  to Directors on a case-by-case basis for special assignments. A Director may
  not vote for his or her own remuneration. If he or she does vote, the decision
  is void. The Board may also authorize the reimbursement of travel and accommodation
  expenses as well as other expenses incurred by Directors in the corporate interest.
  The Chairman and/or Chief Executive Officer are entitled to receive remuneration
  in addition to the jetons de présence granted by the general shareholders
  meeting. The Board of Directors determines this additional remuneration and
  in this case, the Chairman and/or Chief Executive Officer can vote on a resolution
  concerning his or her remuneration. For fiscal year 2005 the shareholders



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authorized
  up to €300,000 in aggregate directors’ fees. Directors’ compensation,
  exclusive of capital gains for fiscal year 2005 was as follows:

|                            |                   |  |                                              |  | Warrants
        Granted                  |  |                          
|--------------------------- | ----------------- |  | -------------------------------------------- |  | ----------------------------------------- |  | -------------------------
|                            | Fees              |  | Number
        of 
        Underlying Shares |  | Exercise
        Price 
        per Share |  | Expiration               
|Michel
        Alard        | €
        18,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Marie-Claude
        Bernal | €
        40,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Pascal
        Brandys      | €
        14,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Marc
        Fourrier       | €
        26,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Richard
        Liebhaber   | €
        28,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Todd
        Lowe           | €
        26,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|Thomas
        Weatherford  | €
        29,000  |  | 8,000                                        |  | €
        9.84                            |  | November
        29, 2009
|                            | €
        181,000 |  | 56,000                                       |  |                                           |  |                          

Under
  French law, we cannot grant options to members of the Board of Directors (other
  than the Chairman and Chief Executive Officer or Deputy Chief Executive Officers)
  who are not employees. 5,000 stock options were granted under our 1998 Stock
  Option Plans in fiscal year 2005 to Jerome Arnaud at an exercise price per share
  of €9.68. Such stock options expire December 29, 2014. No stock options
  were exercised under our Stock Option Plans by executive officers in fiscal
  year 2005.

For
  additional information relating to warrants granted to ILOGs Directors
  in fiscal year 2005 see B. Compensation above and Share
  Ownership below.

C.

Board
  Practices

Under
  French law, the Board of Directors sets the guidelines of the Companys
  activity and supervises their implementation. Within the limits set out by our
  statuts and subject to the powers expressly granted by French law to
  the general shareholders meetings, the Board of Directors may make any
  decision with respect to the business of the Company. In addition, the Board
  of Directors is responsible, among other things, for presenting the year-end
  accounts of ILOG to the shareholders and convening shareholders meetings.
  In addition, the Board of Directors reviews and monitors our economic, financial
  and technical strategies. French law and the statuts provide that the
  Board of Directors be composed of no fewer than three and no more than 18 members.
  The number of members of the Board may be increased only by decision of the
  shareholders by a simple majority vote. Our Board of Directors currently consists
  of eight members. Each Director must be an ILOG shareholder (art L. 225-25 of
  the Commercial Code). Under French law, a Director may be an individual or a
  corporation, in which latter case, the corporation must appoint a représentant
  légal, but the Chief Executive Officer and the Chairman must
  be individuals. The Chief Executive Officer is not required to be a member of
  the Board of Directors if the functions of Chairman and Chief Executive Officer
  are separated. The Deputy Chief Executive Officer is also not required to be
  a member of the Board. A Director does not need to be a French national. Each
  Director is elected for a three year term. There is no limitation, other than
  applicable age limits, on the number of terms that a Director may serve. Directors
  are appointed by the shareholders at an Ordinary Shareholders Meeting and serve
  until the expiration of their respective terms, or until their resignation,
  death or removal, with or without cause, by the shareholders at an Ordinary
  Shareholders Meeting. The Chief Executive Officer may be removed by the Board
  of Directors at any time, and any Deputy Chief Executive Officer may be removed
  by the Board of Directors at any time upon the proposal of the Chief Executive
  Officer. However, under the French law of May 15, 2001, if either is removed
  by the Board of Directors without cause, they may obtain damages. Any vacancy
  in the Board of Directors may be filled by the Board of Directors, pending ratification
  at the next Ordinary Shareholders Meeting. However, if the number of Directors
  falls below the legal minimum of three, the remaining Directors must immediately
  call an Ordinary Shareholders Meeting to elect a sufficient number of Directors
  to reach the legal minimum.

Meetings
  of the Board of Directors, which are held as often as needed, are normally convened
  and presided over by the Chairman of the Board, who is elected by the Board
  of Directors. At the beginning of each fiscal year, the Chairman establishes
  a preliminary schedule of agenda subjects to be discussed during the year. Each
  Director is free to suggest the inclusion of items on the agenda. Each Director
  may raise at any Board meeting matters that are not on the agenda for that meeting.
  According to French law, if the Board of Directors has not met for more than
  two months, at least one-third of the



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members
  of the Board of Directors may request that the Chairman convene a meeting of
  the Board of Directors regarding matters listed on the agenda. The Board of
  Directors met seven times in fiscal year 2005 and the attendance rate averaged
  66%, for voting purposes (wich does not include telephone participation). Including
  telephone participation, 100% of our directors where present for our 7 meetings.
  According to the Companys statuts, Directors who take part in a meeting
  of the Board by means of videoconference are deemed present, for purposes of
  calculating the quorum and the majority. A quorum consists of one-half of the
  members of the Board of Directors and decisions are generally taken by a vote
  of the majority of the members present, deemed to be present or represented
  by other members of the Board of Directors. The Chairman has the ability to
  cast a deciding vote in the event of a tie vote. A Director may give a proxy
  to another Director but a Director cannot represent more than one other Director
  at any particular meeting. Members of the Board of Directors represented by
  another member at meetings do not count for purposes of determining the existence
  of a quorum. As required under French law, a work-committee has been formed.
  Two representatives from our employees are entitled to be present at meetings
  of the Board of Directors, but do not have any voting rights.

Directors
  are required to comply with applicable law and ILOGs statuts. Under
  French law, Directors are liable for violations of French legal or regulatory
  requirements applicable to sociétés anonymes, violation of our statuts
  or mismanagement. Directors may be held liable for such actions either individually
  or jointly and severally with the other Directors as the case may be. A Chief
  Executive Officer or Deputy Chief Executive Officer may be held individually
  responsible for his or her actions if they are deemed contrary to our interests.

French
  law generally prohibits ILOG from entering into indemnification agreements with
  its Directors and officers providing for limitations on personal liability for
  damages and other costs and expenses that may be incurred by Directors and officers
  arising out of or related to acts or omissions in such capacity. French law
  also prohibits our statuts from providing for the limitation of liability of
  a member of the Board of Directors. These prohibitions may adversely affect
  our ability to attract and retain Directors. Generally, under French law, Directors
  and officers will not be held personally liable for decisions taken diligently
  and in our corporate interest.

We
  have entered into an agreement with each of our Directors, our Chairman and
  Chief Executive Officer, our Deputy Chief Executive Officer, our Chief Product
  Officer, our Chief Financial Officer, our Chief Quality Officer and our management
  team to contract for and maintain liability insurance against liabilities which
  may be incurred by such persons in their respective capacities, including liabilities
  which may be incurred under the U.S. federal and state securities laws, subject
  to certain limitations. We believe that entering into such agreements and maintaining
  appropriate liability insurance for our Directors and officers will assist us
  in attracting and retaining qualified individuals to serve as Directors and
  officers. There are no service contracts with Directors providing for benefits
  upon termination of employment.

Under
  the Commercial Code and our statuts, any transaction we enter into (either
  directly or indirectly or through an intermediary) in which a member of our
  Board of Directors, or our Chief Executive Officer or our Deputy Chief Executive
  Officer, or one of our shareholders holding more than 10% of the voting rights
  (or, if it is a company, the company controlling it) has a direct or indirect
  interest and that is not in the ordinary course of business and/or is not at
  arms-length is subject to the prior consent of our Board of Directors.
  The same applies for transactions between the company and another company, whenever
  one of our directors or our Chief Executive Officer is the owner, a partner
  with unlimited liability, a manager, director, Chief Executive Officer or Deputy
  Chief Executive Officer, member of the management board (directoire)
  or supervisory board (conseil de surveillance) of such a
  company.  Furthermore, the types and the purposes of these transactions
  must be communicated by the chairman to the Board of Directors and to the statutory
  auditors. The interested director is not taken into account for the quorum calculation
  and his or her vote is not taken into consideration for the calculation of whether
  the transaction has been approved by the Board of Directors. Any such transaction
  concluded without the prior consent of our Board of Directors can be deemed
  to be null and void if it causes prejudice to the Company. The related director,
  or Chief Executive Officer, can be held liable on this basis. Our statutory
  auditor must be informed of the transaction within one month following its conclusion
  and must prepare a special report to be submitted to our shareholders for approval
  at their next annual meeting. In the event the transaction is not ratified by
  our shareholders at a shareholders meeting, it will remain enforceable
  by third parties against us, but we may in turn hold the interested director
  or Chief Executive Officer, as the case may be, and, in some circumstances,
  the other members of the Board of Directors, liable for any damages we may suffer
  as a result. In addition, the transaction may be cancelled if it is fraudulent.
  Moreover, certain transactions between a corporation and a member of its Board
  of Directors who is a natural person



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and/or
  its managing directors, Chief Executive Officer or Deputy Chief Executive Officer,
  if any, are prohibited under French commercial law. Such prohibition also applies
  to natural persons representing a company acting as a Board member.

Exemptions
  from certain NASDAQ corporate governance rules

At
  the time ILOG listed its ADRs with the NASDAQ National Market, it received an
  exemption from certain corporate governance requirements. This exemption was
  received on February 12, 1997. NASDAQ rules permit NASDAQ to provide exemptions
  from the NASDAQ corporate governance standards to a foreign issuer when those
  standards are contrary to a law, rule or regulation of any public authority
  exercising jurisdiction over such issuer or contrary to generally accepted business
  practices in the issuer's country of domicile. ILOG has received from NASDAQ
  an exemption from compliance with certain corporate governance standards that
  are contrary to the laws, rules, regulations or generally accepted business
  practices of France. The exemptions, and the practices followed by the company,
  are described below:

The
  Company is exempt from NASDAQ's quorum requirements applicable to meetings of
  shareholders. In keeping with French law and generally accepted business practices
  in France, the presence in person or by proxy of shareholders having not less
  than 20% (in the case of an Ordinary General Meeting or an Extraordinary General
  Meeting, deciding upon any capital increase by capitalization of reserves),
  or 25% (in the case of an Extraordinary General Meeting) or a third (in the
  case of a special meeting of the shareholders) of the Shares is necessary for
  a quorum. If a quorum is not present at any meeting, the meeting is adjourned.
  Upon recommencement of an adjourned meeting, there is no quorum requirement
  in the case of an Ordinary General Meeting or an Extraordinary General Meeting
  deciding upon any capital increase by capitalization of reserves. Similarly,
  there is a 20% quorum requirement in the case of any other Extraordinary General
  Meeting, or special meeting. The Company has petitioned for this exemption because
  it would not be legally permissible for a French public company to adopt in
  its articles of association quorum requirements that would be more stringent
  than those prescribed by French law.

The
  Company is exempt from NASDAQs requirements that director nominees must
  be selected, or recommended for the Board of Directors, either by a majority
  of the independent directors or a nominations committee comprised solely of
  independent directors within the meaning of NASDAQs rules. Under French
  law, there is no independence requirement for the Board members who perform
  the function of finding and nominating new Directors. The Compagny considers
  that one of these three members of ILOGs Board of Directors Nominating
  and Corporate Governance Commitees, Todd Lowe, is not independent because his
  spouse is an employee of the Company. The Company has provided to the NASDAQ
  a written statement from independent counsel in the Companys home country
  certifying that the Companys practices are not prohibited by the home
  countrys laws.

Boards
  Charter and Corporate Governance Guidelines

We
  have adopted NASDAQ standards for independence, and we consider all of our Directors
  to be independent other than Todd Lowe and Pierre Haren.

Board
  Committees

A
  substantial portion of the analysis and work of the Board of Directors is done
  by standing Board Committees. Each Committee develops proposals, recommendations
  and opinions, as the case may be, within its respective field of competence,
  as prescribed in each Committees Charter. The Board currently has three
  committees: the Audit Committee composed of Marie-Claude Bernal, as Chairperson,
  Marc Fourrier and Thomas Weatherford; a Compensation Committee, composed of
  Michel Alard and Richard Liebhaber, as Chairperson; and a Nominating and Corporate
  Governance Committee, composed of Marie-Claude Bernal, Richard Liebhaber and
  Todd Lowe, as Chairperson. Committee members are appointed by the full Board
  upon recommendation of the Nominating and Corporate Governance Committee, which
  considers the views of individual Directors.

Each
  Board Committee has its own Charter. The Charters set forth the purposes, goals
  and responsibilities of the Committees as well as the qualifications for Committee
  membership, procedures for Committee member appointment and removal, Committee
  structure and operations and Committee reporting to the Board. The members of
  each Board Committee shall meet the other membership criteria specified in their
  respective Committees Charters.



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The
  primary responsibility of the Audit Committee is to oversee our financial reporting
  process on behalf of the Board of Directors and to report the results of its
  activities to the Board of Directors. In accordance with its Charter, the Audit
  Committee primarily reviews with management and our independent registered public
  accounting firm, our internal accounting procedures and quarterly and annual
  financial statements and consults with and reviews the services provided by
  our independent registered public accounting firm. The Committee reviews the
  interim financial statements and our financial disclosures, as well as earnings
  press releases. The Audit Committee must be composed of at least three Directors.
  Each member of the Audit Committee shall be an independent member of the Board
  of Directors. Members of the Board of Directors shall be considered independent
  as long as they do not, other than in their capacity as members of the Board
  of Directors, the Audit Committee or any other Committee of the Company, accept
  any consulting, advisory, or other compensatory fee from the Company and are
  not an affiliated person of the Company or any of its subsidiaries, and otherwise
  meet the independence requirements of applicable French and U.S. stock exchange
  listing standards and other applicable laws and regulations. The Audit Committee
  shall provide assistance to the Board of Directors in fulfilling their oversight
  responsibility to the shareholders, potential shareholders, the investment community
  and others, relating to: the integrity of ILOGs financial statements;
  the financial reporting process; the systems of internal accounting and financial
  controls; the independent registered public accounting firm qualifications
  and independence; our compliance with ethics policies and legal and regulatory
  requirements; the accuracy of our insider trading policy and the quality of
  our policy for investors communications. The Audit Committee is empowered
  to investigate any matters brought to its attention with full access to all
  books, records, facilities, and personnel of ILOG and the authority to recommend
  the engagement and/or dismissal of external auditors, independent counsel and
  other advisers as it determines necessary to carry out its duties. In fiscal
  year 2005, the Audit Committee met five times and the attendance rate (including
  telephone participation) was 100%.

The
  Compensation Committee is charged, pursuant to its Charter, with (i) reviewing
  and recommending to the full Board of Directors the level of compensation, including
  salary, fees, retirement benefits, executive incentive plans and fringe benefits,
  of the Chairman and Chief Executive Officer and Deputy Chief Executive Officer,
  as well as members of the Board; (ii) reviewing and approving annually the general
  compensation policies applicable to the Companys executive officers, including
  the relationship of the Companys performance to executive compensation;
  (iii) reviewing and advising the Board of Directors concerning, and if deemed
  appropriate, retaining independent consultants regarding, national, regional
  and industry-wide compensation practices and trends in order to assess the adequacy
  and competitiveness within the high technology and software industries of the
  Companys executive compensation programs; (iv) overseeing and recommending
  from time to time for adoption by the Board of Directors share option plans,
  share appreciation rights plans, pension and profit sharing plans, bonus plans,
  deferred compensation plans, warrant award plans for independent Directors and
  Technical Advisory Board plans, independent Director compensation plans and
  other similar programs; (v) overseeing and recommending to the Board of
  Directors the Companys stock incentive and purchase plans as in effect
  and as adopted from time to time for adoption by the Companys shareholders;
  (vi) performing such other functions and having such other powers as may be
  necessary or convenient to the efficient discharge of the foregoing; and (vii)
  reporting to the Board of Directors regarding the foregoing from time to time.
  In fiscal year 2005, the variable component of executive officers and all other
  employees remuneration included a bonus. This bonus calculation was based
  on a formula weighing the achievement of two fixed objectives for the year,
  namely operating profit greater than $10.0 million and revenue growth greater
  than 15%. Applying the formula to this years financial statements results
  in a bonus of approximately $1.3 million to be paid to the employees on September
  30, 2005, of which $0.6 million will be paid to executive officers. In fiscal
  year 2005, the Compensation Committee met twice and the attendance rate (including
  telephone participation) was 100%.

The
  Nominating and Corporate Governance Committee was established in October 2002
  with the primary objectives, pursuant to its Charter, of (i) identifying individuals
  qualified to become Board members and recommending that the Board select a group
  of director nominees for each next annual meeting of our stockholders; (ii)
  ensuring that the Audit, Compensation, Corporate Governance and Nominating,
  and any other future Committees of the Board shall have the benefit of an appropriate
  number of qualified and experienced independent directors; (iii) developing
  and recommending to the Board a set of effective corporate governance policies
  and procedures applicable to us; (iv) monitoring significant developments in
  the law and practice of corporate governance; and (v) leading the Board and
  each committee thereof in its annual performance evaluation, including establishing
  criteria to be used in connection with such evaluation. Key decisions and actions
  of the Nominating and Corporate Governance Committee in fiscal year 2005 included
  reviewing the Companys orientation on the compliance with the Law n°2003-706
  on financial security law of August 1, 2003 (the Financial



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Security
  Law), and the Sarbanes-Oxley Act requirements in collaboration with the
  Audit Committee. In fiscal year 2005, the Nominating and Corporate Governance
  Committee met four times and the attendance rate (including telephone participation)
  was 100%.

Our
  Board of Directors has determined that Mr. Thomas Weatherford is an Audit Committee
  financial expert within the meaning of Item 16A. (b) and (c) of the requirements
  of Form 20-F of the SEC. The SEC has determined that the audit committee financial
  expert designation does not impose on the person with that designation, any
  duties, obligations or liability that are greater than the duties, obligations
  or liabilities imposed on such person as a member of the audit committee of
  the Board of Directors in the absence of such designation.

Internal
  Control Procedures

Under
  the Financial Security Law, issuers of publicly traded securities are subject
  to new disclosure requirements for corporate governance and internal control.
  The Chairman is required to report to shareholders annually, in a document appended
  to the Management Report issued by the Board of Directors, on the way in which
  the Board prepares and organizes its work, as well as on the internal control
  procedures implemented by the Company. For limited companies with a Board of
  Directors, the report must also specify whether the powers of the Chief Executive
  Officer have been restricted in any way.

One
  of the objectives of the internal control procedures is to prevent and control
  risks arising from the Companys businesses and risks of error or fraud,
  in particular in areas of accounting and finance. As with every control system,
  it cannot provide an absolute guarantee that these risks are totally eliminated.
  See also Item 15.

Ethical
  Values and Principles of Conduct for the Group

The
  ethical values and principles of conduct for the Company are defined in two
  of the Companys principal documents:

(1)
  ILOG Code of Business Conducts and Ethics

(2)
  Supplementary Code of Ethics and Business Conduct for Designated Executives

D.

Employees

The
  following chart indicates our total number of employees and the distribution
  of employees by function, as of June 30, 2005, 2004, and 2003:

|                                        | 2005 |  | 2004 |  | 2003
|--------------------------------------- | ---- |  | ---- |  | ----
|Sales
        and Marketing             | 256  |  | 250  |  | 264 
|Consulting
        and Customer Support | 148  |  | 114  |  | 120 
|Research
        and Development        | 175  |  | 164  |  | 151 
|General
        and Administrative      | 86   |  | 86   |  | 84  
|Total
        Employees                 | 665  |  | 614  |  | 619 

The
  following chart indicates the geographic distribution of our employees, as of
  June 30, 2005, 2004 and 2003:

|                        | 2005 |  | 2004 |  | 2003
|----------------------- | ---- |  | ---- |  | ----
|Europe                  | 402  |  | 378  |  | 380 
|North
        America   | 196  |  | 181  |  | 178 
|Asia                    | 67   |  | 55   |  | 61  
|Total
        Employees | 665  |  | 614  |  | 619 

Employee
  turnover was approximately 13% and 10% in fiscal year 2005 and fiscal year 2004
  respectively.

We
  have never experienced a strike and believe that our relationships with our
  employees are good. Our employees in



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France
  are generally employed on a permanent basis. We do employ a few temporary workers
  during periods of transition, and we subcontract a small portion of our work
  to third parties.  See Item 3.D. Risk Factors.

Our
  employees in France are represented by an independent union, and management
  is required under the French Labor Code to hold monthly meetings with a delegation
  of elected employee representatives to discuss, in particular, employment matters
  and the economic condition of the Company and to provide appropriate information
  and documents relating thereto. Monthly reports are published on the ILOG intranet.
  As required under the French Labor Code, two representatives of the employees
  are entitled to attend meetings of the Board of Directors, but do not have any
  voting rights.

A
  profit sharing plan (accord dintéressement) was developed
  and approved by the Board in September 2004 for implementation for French employees
  in fiscal years 2005, 2006 and 2007. Payments under the plan are determined
  as a percentage of the yearly paid remuneration and with the same method as
  the one used for all other employees located in our subsidiaries, i.e., based
  on yearly targeted growth and operating profit, and resulted in the payment
  of approximately $0.3 million on September 30, 2005.

E.

Share
  Ownership

The
  table below sets forth certain information with respect to the beneficial ownership
  of shares, options and/or warrants outstanding as of August 31, 2005 by our
  Directors and executive officers, where such beneficial ownership represents
  more than one percent:

|                                                                                |  |         |  | Options
        & Warrants          |  | Options
        and Warrants Granted in fiscal year  
        2005 |  |                                     |  |                                      | 
|------------------------------------------------------------------------------- |  | ------- |  | ----------------------------------- |  | ------------------------------------------------------------------ |  | ----------------------------------- |  | ------------------------------------ | 
|Name                                                                            |  | Shares  |  | Number
        of Underlying Shares |  | Exercise
        Price(s)
        Euros                            |  | Number
        of Underlying Shares |  | Exercise
        Price
        Euros | 
|Directors
        and executive officers as a group 
        (12 people) (2)(3) |  | 857,031 |  | 975,627                             |  | 3.81-51.50                                                         |  | 61,000                              |  | 9.68-9.84                            | 
|Marc
        Fourrier(5)                                                        |  | 236,285 |  | 40,000                              |  | 7.99-39.21                                                         |  | 8,000                               |  | 9.84                                 | 
|Pierre
        Haren(6)                                                         |  | 292,319 |  | 220,000                             |  | 3.81-10.01                                                         |  |                                    |  |                                     | 
|Todd
        Lowe(4)                                                            |  | 302,784 |  | 104,000                             |  | 5.62-10.45                                                         |  | 8,000                               |  | 9.84                                 | 



(1)

Number
  of Shares and percentage ownership are based on 18,128,541 Shares outstanding
  as of August 31, 2005. Beneficial ownership is determined in accordance with
  the General Instructions of Form 20-F.  The term beneficial owner
  of securities refers to any person who, even if not the record owner of the
  securities, has or shares the underlying benefits of ownership.  These
  benefits include the power to direct the voting or the disposition of the securities
  or to receive the economic benefit of ownership of the securities.  Shares
  subject to options and warrants that are currently exercisable or are exercisable
  within 60 days of August 31, 2005, are deemed to be outstanding and to be beneficially
  owned by the person holding such options or warrants for the purpose of computing
  the percentage ownership of such person, but are not deemed to be outstanding
  and to be beneficially owned for the purpose of computing the percentage ownership
  of any other person.

(2)

Includes
  284,000 warrants granted and outstanding to non-executive Directors, which expire
  five years from the date of grant as follows: 12,000 in November 2005, 80,000
  in January 2006, 40,000 in December 2006, 56,000 in June 2008, 40,000 in December
  2008, and 56,000 in November 2009.

(3)

Includes
  611,627 options granted to executive officers under the plans described below
  and which expire ten years from the date of grant as follows: 418 in 2006, 20,000
  in April 2007, 5,834 in July 2007, 150,000 in October 2007, 28,000 in August
  2008, 1,375 in January 2009, 18,000 in October 2009, 110,000 in July 2010, 30,000
  in November 2010, 133,000 in November 2011, 65,000 in May 2012, 45,000 in December
  2013, and 5,000 in November 2014.

(4)

Shares
  are held in the name of the Lowe Family Trust of which Mr. Lowe is a trustee.
  Includes 80,000 options held by Janet Lowe, which expire as follows: 50,000
  in August 2007, 15,000 in October 2009, and 15,000 in November 2011 and 8,000
  warrants expiring in June 2008, 8,000 in December 2008 and 8,000 in November
  2009.

(5)

Includes
  two shares held by Delphis, a corporation controlled by Mr. Fourrier and his
  family. The warrants expire as follows: 4,000 in November 2005, 4,000 in January
  2006, 8,000 in December 2006, 8,000 in June 2008, 8,000 in December 2008, and
  8,000 in November 2009.

(6)

Includes
  56,000 shares held in the name of Dr. Harens children. The options expire
  as follows: 20,000 in April 2007, 150,000 in October 2007 and 50,000 in November
  2011.



46
  | Form 20-F 2005  ILOG



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We
  have various employee stock option and employee stock purchase plans currently
  in effect. Under French law, we cannot grant options to members of the Board
  of Directors (other than the Chairman and Chief Executive Officer or Deputy
  Chief Executive Officers) who are not employees.

Warrants
  for Non-Executive Directors and TAB Members.   Pursuant to resolutions
  adopted on September 21, 1999, October 18, 2000, December 18, 2000, December
  18, 2001, December 17, 2002, December 16, 2003, and November 30, 2004,
  the shareholders have authorized the Board to issue warrants to the non-executive
  Directors and TAB members for the purchase of ILOG Shares, of up to a total
  of 400,000 shares. On September 22, 1999, November 22, 2000, December
  18, 2000, December 18, 2001, February 26, 2003, June 18, 2003, December 16,
  2003, and November 30, 2004, warrants to purchase 20,000, 32,000,
  80,000, 60,000, 20,000, 56,000, 76,000 and 56,000 shares, respectively, were
  granted to 10 non-executive Directors and five TAB members. Warrants representing
  356,000 shares were outstanding as of August 31, 2005, as two directors did
  not accept their grants. The warrants may be exercised at prices between €4.48
  and €39.21 per Share at any time until the fifth anniversary of the date
  of grant, when they lapse.

The
  following is a summary description of each of the Company’s stock plans.

The
  1996 Stock Option Plan. In 1994, ILOGs shareholders, at an extraordinary
  meeting, authorized the Board of Directors to grant, until November 23, 1999,
  options on up to 500,000 shares at a price to be determined by the Board of
  Directors on the date of grant based on ILOGs net assets, a reasonable
  estimate of its future profitability and its future development prospects (the
  1994 Plan). In order to comply with the U.S. Internal Revenue Code
  of 1986, as amended (the Code), for the granting of incentive stock
  options, we decided to adopt a new plan (the 1996 Plan), incorporating
  Shares authorized under the 1994 Plan. The 1996 Plan was approved by the shareholders
  at an extraordinary meeting on May 30, 1996, and on that date 600,000 Shares
  were granted; on October 17, 1996, 200,000 Shares; on August 20, 1997,
  1,600,000 Shares; on December 17, 1997, 500,000 Shares; and on August 31, 1998,
  1,000,000 Shares, were added to the 1996 Plan with respect to which options
  could also be granted by the Board of Directors until November 23, 1999.
  Following the approval by shareholders at an extraordinary meeting of the 1998
  Plan (see below), 1,000,000 shares authorized for the 1996 Plan were transferred
  to the 1998 Plan. Under the 1996 Plan, optionees are entitled to exercise options
  for ten years (or seven years less one day for U.K. employees). Under the 1996 Plan,
  generally and unless otherwise specified, one-fourth of the Shares subject to
  option vest 12 months after the date of grant of options and  1/48 of the
  Shares vest each month thereafter provided the optionee continues to render
  services to ILOG. As of August 31, 2005, options with respect to an aggregate
  of 1,168,897 Shares were outstanding at exercise prices ranging from €3.35
  to €13.54.

The
  1998 Stock Option Plan. On November 4, 1998, ILOGs shareholders, at
  an extraordinary meeting, approved the 1998 Stock Option Plan, to succeed
  the 1996 Stock Option Plan, and at that time options representing 1,000,000
  Shares previously authorized for the 1996 Plan were transferred to the 1998
  Plan. In addition, on September 21, 1999, 900,000 Shares and on October 18,
  2000, 1,250,000 Shares, were authorized with respect to which options may be
  granted by the Board of Directors. The 1998 Stock Option Plan is identical to
  the 1996 Stock Option Plan except that it expires in October 2005. As of
  August 31, 2005, options with respect to an aggregate of 2,784,895 Shares were
  outstanding at exercise prices ranging from €2.92 to €51.50, and
  options to purchase or subscribe for up to 93,655 Shares remained available
  for future grants under the 1998 Plan until October 2005.

The
  2001 Stock Option Plan. On September 25, 2001, ILOGs shareholders,
  at an extraordinary meeting, authorized the Board of Directors to grant options,
  which give the right to subscribe for or purchase up to 1,100,000 Shares, to
  employees under the 2001 Stock Option Plan (the 2001 Plan)  On
  December 18, 2001, the shareholders ratified and amended the 2001 Plan.  Pursuant
  to the 2001 Plan, the issue price of the Shares will be equal to the closing
  price for a Share on the Eurolist by Euronext on the last trading day preceding
  the date of the grant of the options, provided that the issue price is not less
  than (i) 80% of the average of the closing prices quoted for a Share on the
  Eurolist by Euronext during the twenty trading days preceding such date of grant
  and (ii) 80% of the average repurchase price of any Shares held by the Company.
  Under the 2001 Plan, generally and unless otherwise specified, one-fourth of
  the Shares subject to option vest 12 months after the date of grant and  1/48
  of the Shares vest each month thereafter provided the optionee continues to
  render services to ILOG. As of August 31, 2005, options with respect to an aggregate
  994,964 Shares were outstanding at



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exercise
  prices ranging from €8.66 to €10.78, and options to purchase or
  subscribe for up to 68,486 Shares remained available for grant under the 2001
  Plan.

The
  2004 Stock Option Plan. On November 30, 2004, ILOG’s shareholders,
  at an extraordinary meeting, authorized the Board of Directors to grant options,
  which give the right to subscribe for or purchase up to 800,000 Shares to employees.
  Under the 2004 Stock Option Plan (the 2004 Plan), the issue price
  of the Shares will be equal to the closing price for a Share on the Eurolist
  by Euronext on the last trading day preceding the date of the grant of the options,
  provided that the issue price is not less than (i) 80% of the average of the
  closing prices quoted for a Share on the Eurolist by Euronextduring the twenty
  trading days preceding such date of grant and (ii) 80% of the average repurchase
  price of any Shares held by the Company. Under the 2004 Plan, generally and
  unless otherwise specified, one-fourth of the Shares subject to option vest
  12 months after the date of grant and 1/48 of the Shares
  vest each month thereafter provided the optionee continues to render services
  to ILOG. As of August 31, 2005, no options have been issued under the 2004 Plan,
  and therefore 800,000 Shares remained available for grant under the 2004 Plan.

All
  options granted under the 1996, 1998, 2001 and 2004 Plans have a term of ten
  years, other than options granted to employees in the United Kingdom which have
  a term of seven years less one day. Generally, and unless otherwise specified,
  if an optionee terminates his or her employment with ILOG, the optionee may
  exercise only those options vested as of the date of termination and must effect
  such exercise within three months, except for optionees who are French tax residents
  at the date of grant of the options who may exercise their options until the
  termination of the term of their options. Since the ILOG insider trading policy
  has been extended to all employees worldwide, this three-month period is extended
  by the number of weeks during which the terminated employee cannot exercise
  due to blackout periods. In general, if an optionee dies during his or her employment,
  or within three months after termination of employment, such persons options
  may be exercised up to six months after his or her death to the extent vested
  at the time of his or her death or termination. No option may be transferred
  by the optionee other than by will or the laws of intestacy.

In
  December 1996, the French parliament adopted a law that requires French companies
  and optionees to pay French social contributions and certain salary-based taxes,
  which may represent, for ILOG, up to 45% of the taxable amount, on the difference
  between the exercise price of a stock option and the fair market value of the
  underlying shares on the exercise date, if the beneficiary is a French resident
  subject to French social security at the date of grant of the stock options
  and disposes of the shares, or converts the shares into bearer form, before
  the fifth anniversary of the date of grant of the option. In addition, such
  difference is treated as salary income for personal income tax purposes if the
  shares are sold or otherwise disposed of within five years of the grant date.
  This applies to all options granted to French residents subject to French social
  security exercised after January 1, 1997. Thus, in order to benefit from the
  social contributions favorable regime, the Plans provide that the shares to
  be obtained by exercise of the options granted as of January 1, 1997 to French
  residents subject to French social security may not be disposed of or converted
  into bearer form until the end of the five-year holding period from the date
  of grant of the options. In addition, pursuant to the Law of July 2, 1998, both
  the beneficiary and ILOG are exempt from social contributions if the options
  were granted before January 1, 1997 and are exercised after April 1, 1998 due
  to the fact that ILOG has not been registered for more than 15 years at the
  date of grant of such options. Under the Law of May 15, 2001, the five-year
  holding period is reduced to four years with respect to stock options granted
  on or after April 27, 2000. In addition, with respect to options exercised after
  January 1, 1995, an excessive discount, as determined by French law, is subject
  to French social contributions at the exercise date.

We
  have not recorded a liability for social contributions and certain salary-based
  taxes that may be assessed for options granted up to June 30, 2005, as the liability,
  being dependent on future values of our Shares and the timing of employees
  decisions to exercise options and sell the related Shares, cannot be estimated.
  We also do not consider that the liability is probable due to the income tax
  disincentives to employees of exercising options and selling the Shares prior
  to the end of the minimum holding period, which conditions the eligibility under
  the favorable tax and social contribution regime.

International
  Employee Stock Purchase Plan. In October 1996, ILOGs shareholders
  had approved our International Employee Stock Purchase Plan (the Purchase
  Plan) and renewed such approval in December 2003, which reserved a total
  of 400,000 Shares for issuance to the ILOG S.A. Employee Benefits Trust thereunder
  for a period of two years. The Purchase Plan permitted eligible employees to
  acquire Shares in the form of ADSs through payroll deductions. The Purchase
  Plan was intended to qualify as an employee stock purchase plan
  under Section 423 of the Code. The Board of



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Directors
  decided to use the Plan until its expiration, and not to renew the Purchase
  Plan. The last offering period was closed in January 2005.

French
  Employee Savings Plan. ILOGs shareholders in December 2003 reserved
  a total of 600,000 Shares for issuance to ILOG employees participating in the
  French Employee Savings Plan the (Savings Plan) for a period of
  two years. The Savings Plan permitted eligible employees to make contributions
  for purposes of purchasing units in investment funds managed for ILOG on behalf
  of the employees, or to acquire ILOG Shares at a preferential price. The Savings
  Plan is an Employee Savings Plan under Article L.443-1 et. seq. of the French
  Labor Code. The Board of Directors decided to use the Plan until its expiration,
  and not to renew it. The last offering period was closed in September 2004.

As
  of August 31, 2005, we had issued 177,720 and 28,534 Shares under the International
  Employee Purchase Plan and the French Employee Savings Plan, respectively, since
  ILOGs shareholders approval in December 2003.

Item
  7.

Major
  Shareholders and Related Party Transactions

We
  have no service contracts with our Directors providing for benefits upon termination.

A.

Major
  Shareholders

The
  table below sets forth certain information with respect to the beneficial ownership
  of ILOG shares as of August 31, 2005 by any person known to us to be the owner
  of five percent or more of the outstanding Shares, of our Directors and executive
  officers, considered as one group, and French employees participating in our
  French employee savings plan:

|Name
        and Address of Beneficial Owner                            |  | Shares
        Beneficially Owned (1) |  | Percentage
        Owned (1) | 
|----------------------------------------------------------------------- |  | ------------------------------------- |  | ---------------------------- | 
|All
        Directors and executive officers as a group (12 persons)(2) |  | 1,779,966                             |  | 9.8%                         | 
|INRIA                                                                   |  | 1,137,500                             |  | 6.3%                         | 
|Financière
        de lEchiquier                                       |  | 912,717                               |  | 5.0%                         | 
|French
        employees (3)                                            |  | 555,815                               |  | 3.1%                         | 
|                                                                        |  |                                       |  |                              | 

(1)

Number
  of Shares and percentage ownership are based on 18,128,541 Shares outstanding
  as of August 31, 2005. Beneficial ownership is determined in accordance with
  the General Instructions of Form 20-F.  The term beneficial owner
  of securities refers to any person who, even if not the record owner of the
  securities, has or shares the underlying benefits of ownership.  These
  benefits include the power to direct the voting or the disposition of the securities
  or to receive the economic benefit of ownership of the securities. Shares subject
  to options and warrants that are currently exercisable or are exercisable within
  60 days of August 31, 2005, are deemed to be outstanding and to be beneficially
  owned by the person holding such options or warrants for the purpose of computing
  the percentage ownership of such person, but are not deemed to be outstanding
  and to be beneficially owned for the purpose of computing the percentage ownership
  of any other person.

(2)

Includes
  611,627 shares issuable upon exercise of options and warrants to purchase shares
  which are exercisable within 60 days of August 31, 2005, 284,000 warrants granted
  and outstanding to non-executive Directors, and 80,000 options held by Janet
  Lowe.

(3)

Represents
  the shares of ILOG held directly or indirectly by employees who are resident
  in France and held under our French employee savings plan.

On
  March 23, 2005 a French company Financière de lEchiquier purchased
  912,717 shares representing, 5.0% of the Companys shares at August 31,
  2005. Fidelity Investments, through various funds under its management, had
  during 2003 and in prior years control of between approximately 5% and 10% of
  the Companys outstanding shares. Fidelity Investments has reduced its
  share in ILOG below 5% on August 8, 2003. Robert Bixbys beneficial ownership
  was 5.1% in fiscal year 2003 and decreased below 5% in fiscal year 2004. To
  our knowledge, over the last three years there have been no other significant
  changes in the percentage ownership held by any other of the Companys
  major shareholders.

To
  our knowledge, except as disclosed above, the Company is not directly or indirectly
  owned or controlled by any other corporation, foreign government or any other
  natural or legal person severally or jointly and the Company is not aware of
  any arrangements, the operation of which may at a subsequent date result in
  a change of control of the Company.

None
  of the holders of Shares listed in this table have voting rights different from
  other holders of shares. We are not aware of any shareholders agreement
  with respect to our shares.



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As
  of August 31, 2005, ADRs evidencing approximately 3,017,677 ADSs were held of
  record by approximately 38 record holders.  The 3,017,677 Shares represented
  by those ADRs (approximately 17% of the Company's issued and outstanding Shares)
  were registered in the name of BNP-Paribas.  Since certain of the Companys
  ADSs and Ordinary Shares are held by brokers and other nominees, the number
  of ADSs and Ordinary Shares held of record and the number of record holders
  may not be representative of the location of where the beneficial holders are
  resident.

B.

Related
  Party Transactions

None.

C.

Interests
  of Experts and Counsel

Not
  Applicable.

Item
  8.

Financial
  Information

A.

Consolidated
  Statements and Other Financial Information

See
  Item 18. Financial Statements for a list of the financial statements
  filed with this Annual Report on Form 20-F.

ILOG
  is involved in a lawsuit entitled Jensen Denmark A/S and Naicom Technologies
  vs. ILOG S.A. This suit is pending in France. This suit was brought by Jensen
  Denmark and Naicom Technologies against ILOG for breach of contract, bad faith,
  and failure to meet the standard of care owed by a professional consultant.
  ILOG has filed a counterclaim in which it alleges that ILOG is entitled to recover
  from the plaintiffs fees which we incurred but which were not paid, as well
  as additional damages.  ILOG is vigorously prosecuting this litigation.
  This matter is covered by ILOGs insurance, and the insurance company has
  accepted the defense of this matter.

In
  July 2004 we initiated litigation against Aspen Technology, Inc. for breach
  of contract.  This case was settled in December 2004, with Aspen Technologys
  agreement to pay ILOG $845,000 of the $900,000 that was in dispute.  All
  issues surrounding this litigation have been resolved. The payment was recorded
  as revenue on December 31, 2004 as it represented the settlement of their contractual
  obligations toward the Company.

We
  are a party to various other legal proceedings from time to time. There is currently
  no such proceeding which we believe is likely to have, or recently has had,
  a material adverse effect on our financial situation, our business or results
  of operations. Any litigation, however, involves potential risk and potentially
  significant litigation costs, and therefore there can be no assurance that any
  litigation which may arise in the future will not have a material adverse effect
  on our business.

To
  the knowledge of the Company, there are no other significant commitments or
  contingencies as of June 30, 2005.

We
  have not paid any cash dividends on our share capital to date. We currently
  anticipate that we will retain any future earnings for use in our business and,
  therefore, do not anticipate paying any cash dividends in the foreseeable future.
  Any dividend would be declared and paid in euros and under French law and our
  statuts, may only be paid from pre-consolidated ILOG S.A. statutory retained
  earnings. As of June 30, 2005, pre-consolidated ILOG S.A.s accumulated
  profit was approximately $6.5 million. Any dividends paid to holders of ADSs
  would be converted from euros to U.S. dollars, subject to a charge by the Depositary
  for any expenses incurred by the Depositary in such conversion.  Fluctuations
  in the exchange rate between euros and dollars and expenses of the Depositary
  would affect the dollar amounts actually received by holders of ADSs upon conversion
  by the Depositary of such cash dividends.  See Item 3.D.Risk
  Factors5. Other risks of owning ILOG Shares and ADSsHolders of ADSs
  may be subject to additional risks related to holding ADSs rather than Shares.
   See Item 10.E.Taxation for a description of the principal
  French and U.S. federal income tax consequences regarding the taxation of dividends
  for holders of ADSs and Ordinary Shares.



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B.

Significant
  Changes

Except
  as disclosed elsewhere in this Annual Report, there have been no significant
  changes in the Companys business since June 30, 2005, the date of the
  annual financial statements included in this Annual Report.

Item
  9.

The
  Offer and Listing

A.

Offer
  and Listing Details

Closing
  Sale Prices of ILOG ADSs and Shares

The
  following table sets forth the range of low and high reported closing sale prices
  of our ADSs (each ADS representing one Share) on the NASDAQ National Market
  for the last five fiscal years and periods indicated.

|                       | In
        Dollars | 
|---------------------- | ------------------ | 
|                       | Low                | 
|2000                   | 5,00               | 
|2001                   | 9,60               | 
|2002                   | 5,00               | 
|2003                   | 2,70               | 
|2004                   | 8,16               | 
|First
        Quarter  | 8,16               | 
|Second
        Quarter | 10,27              | 
|Third
        Quarter  | 9,46               | 
|Fourth
        Quarter | 10,42              | 
|2005                   | 9,12               | 
|First
        Quarter  | 9,12               | 
|Second
        Quarter | 10,00              | 
|Third
        Quarter  | 12,24              | 
|Fourth
        Quarter | 11,66              | 
|Monthly                |                    | 
|March
        2005     | 13,44              | 
|April
        2005     | 12,85              | 
|May
        2005       | 11,66              | 
|June
        2005      | 12,57              | 
|July
        2005      | 12,80              | 
|August
        2005    | 14,62              | 

On
  August 31, 2005, the last sale price for the ADSs as reported on the NASDAQ
  National Market was $14.77 per ADS.

The
  Depositary for ADSs is JPMorgan Chase Bank. Each ADS registered on the books
  of the Depositary corresponds to one Share. As of August 31, 2005, there were
  38 record holders of American Depositary Receipts evidencing 3,017,677 ADSs.



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From
  December 1998 to February 2005, the Shares were listed on the Nouveau Marché
  of Euronext Paris, and are since then listed on Eurolist by Euronext. The following
  table sets forth the range of high and low reported closing sale prices of the
  Shares on the Eurolist by Euronext (and, prior to February 21, 2005, on the
  Nouveau Marché) for the last five fiscal years and periods indicated.

|                       |  | In
        Euros | 
|---------------------- |  | ---------------- | 
|                       |  | Low              | 
|2000                   |  | 5,01             | 
|2001                   |  | 11,49            | 
|2002                   |  | 5,00             | 
|2003                   |  | 2,75             | 
|2004                   |  | 7,15             | 
|First
        Quarter  |  | 7,15             | 
|Second
        Quarter |  | 9,06             | 
|Third
        Quarter  |  | 7,89             | 
|Fourth
        Quarter |  | 8,55             | 
|2005                   |  | 7,50             | 
|First
        Quarter  |  | 7,50             | 
|Second
        Quarter |  | 8,23             | 
|Third
        Quarter  |  | 9,40             | 
|Fourth
        Quarter |  | 9,55             | 
|Monthly                |  |                  | 
|March
        2005     |  | 10,65            | 
|April
        2005     |  | 10,15            | 
|May
        2005       |  | 9,55             | 
|June
        2005      |  | 10,48            | 
|July
        2005      |  | 10,81            | 
|August
        2005    |  | 12,07            | 

On
  August 31, 2005, the last sale price for the Shares as reported on the Eurolist
  by Euronext was €12.07 per Share.

B.

Plan
  of Distribution

Not
  Applicable.

C.

Markets

The
  ADSs are quoted on the NASDAQ National Market under the symbol “ILOG”.
  The Shares are also listed on the Eurolist by Euronext. The Nouveau Marché
  of Euronext Paris, on which our shares were traded, has been merged into a new
  market called Eurolist by Euronext since February 21, 2005 and the Shares are
  accordingly traded on the Eurolist by Euronext since that date.

The
  Paris Market

The
  Financial Security Law provided for the creation a single regulatory body, the
  Autorité des Marchés Financiers (the AMF), to control
  and supervise French financial markets. The AMF, an independent administrative
  authority, results from the merger of three former independent market watchdogs,
  namely the Commission des Opérations de Bourse (the COB),
  the Conseil des Marchés Financiers (the CMF) and the
  Conseil de Discipline de la Gestion Financière. The AMF is responsible
  for the protection of investors, the dissemination of information to the public
  by traded companies and the proper running of the securities markets. References
  in this Annual Report on Form 20-F to the AMF include its predecessors, the
  COB and the CMF.



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Effective
  September 22, 2000, Euronext was formed from the merger of Paris Bourse SBF
  S.A. (which changed its name to Euronext Paris), the Amsterdam Stock Exchange
  and the Brussels Exchange, and the Portugal Exchange was included in Euronext
  in January 2002. Euronext operates four subsidiary holding companies in each
  of the four member countries. Each subsidiary continues to hold an exchange
  license for its local capital market. Listed companies remain listed on their
  original exchange but all shares are traded on a single integrated trading platform
  and listing requirements have been harmonized. Trading is regulated with a single
  rulebook and the take-over rules continue to be imposed domestically. Euronext
  provides integrated trading, clearing and settlement on all four markets, and
  a central counter party, netting and clearing house for all executed trades
  via Clearnet.

Official
  trading of listed securities on Euronext Paris is transacted through providers
  of investment services or prestataires de services d’investissements
  (investment companies and other financial institutions). The trading of
  ILOG Shares takes place continuously on each business day from 9:00 a.m. through
  5:25 p.m. (Paris time), with a pre-closing session from 5:25 p.m. to 5:30 p.m.
  during which time transactions are recorded but not executed, with a closing
  auction at 5:30 p.m. During a pre-opening session from 7:15 a.m. through 9:00
  a.m. transactions are recorded but not executed. Any trade effected after the
  close of a stock-exchange session is recorded on the next Euronext Paris trading
  day, at the closing price for the relevant security at the end of the previous
  days session.

Euronext
  Paris is a market enterprise (entreprise de marché) to which is
  entrusted the operation of regulated markets, including the admission of financial
  instruments. Euronext Paris publishes a daily Official Price List that includes
  price information on each listed security. Euronext Paris provides continuous
  trading by computer during trading hours for all listed securities.

Reform
  of the Regulated Market of Euronext

On
  February 21, 2005, Euronext replaced its three regulated markets (Premier
  Marché, Second Marché and Nouveau Marché) by a single list
  called Eurolist by Euronext. Companies on this regulated market are classified
  by alphabetical order and by market capitalization.

Previously,
  the securities of most large public companies were listed on the Premier
  Marché of Euronext Paris. TheSecond Marché was available
  for small and medium-sized companies. The Nouveau Marché, on which
  the ILOG shares were listed was for companies seeking development capital, and
  the EDR market for European Depositary Receipts. Shares of certain other companies
  are traded on the marché libre-OTC, an unregulated over-the-counter
  type of market. In addition, shares listed on Eurolist by Euronext are placed
  in one of three categories depending on the volume of transactions. The Shares
  are listed in the category known as Continu, or continuous trading, which
  includes the most actively traded shares.

Trading
  in the listed securities of an issuer may be reserved or suspended by Euronext
  Paris if changes in quoted prices exceed certain price limits defined
  by its regulations. In particular, if the quoted price of a security varies
  by more than 10% from the reference price, Euronext Paris may restrict trading
  in that security for up to four minutes (réservation à la
  hausse ou à la baisse). The reference price is usually the opening
  price, or, with respect to the first quoted price of a given trading day,
  the last traded price of the previous trading day, as adjusted if necessary
  by Euronext Paris to take into account available information. Further suspensions
  for up to four minutes are also possible if the price again varies by more than
  10% from a new reference price equal to the price that caused the first
  trading suspension. Euronext Paris may also reserve trading for a four-minute
  period if the quoted price of a security varies by more than 2% from the last
  traded price. However, subject to trading conditions and appropriate and timely
  information, Euronext Paris may modify the reservation period and may accept
  broader fluctuation ranges than above mentioned. Euronext Paris may also
  suspend trading of a listed security in certain other limited circumstances,
  including, for example, the occurrence of unusual trading activity in such security.
  In addition, in exceptional cases, the AMF may ask Euronext to suspend trading.

Trades
  of securities listed on Eurolist by Euronext are cleared and settled through
  Euroclear France S.A. A fee or commission is payable to the broker-dealer or
  other agent involved in the transaction.

The
  Company currently has no plans to list its securities for trading on any other
  markets.



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The
  NextEconomy segment

ILOG
  joined the NextEconomy segment of Euronext N.V., when it was created on January
  2, 2002. This segment contains companies from sectors related to the new economy.
  Companies included in this segment undertake to comply with specific commitments
  for financial transparency, in addition to existing local obligations. Shares
  included in the NextEconomy segment shall be traded on a continuous basis, with
  or without the involvement of one or more liquidity providers.

For
  any financial year beginning on or after January 1, 2005, ILOG shall prepare
  and publish annual Consolidated Financial Statements and interim reports, reviewed
  and approved by the Audit Committee and an independent registered public accounting
  firm (Commissaires aux Comptes), of each financial year with one year
  comparative in accordance with the International Financial Reporting Standards
  (IFRS) (in line with European Regulation n°1606/2002). Comparative
  figures shall be provided and restated on the same basis as for the 2005 year.
  Euronext regards as best practice that companies included in the NextEconomy
  segment publish first and third quarterly reports with a content that shall
  be the same as the content of the half-yearly report.

ILOG
  complies with all Euronext requirements with respect to the NextEconomy segment.
  With regards to best practice as set forth by Euronext, ILOG has filed a document
  de référence with the AMF on an annual basis since its admission
  to listing on Nouveau Marché (which became Eurolist by Euronext)
  and publishes quarterly financial information.

The
  Shares have been included in the following indices managed by Euronext : Index
  SBF 250, IT CAC, Next 150 and NextEconomy.

D.

Selling
  Shareholders

Not
  Applicable.

E.

Dilution

Not
  Applicable.

F.

Expenses
  of the Issue

Not
  Applicable.

Item
  10.

Additional
  Information

A.

Share
  Capital

Not
  Applicable.

B.

Articles
  of Incorporation and By-laws

For
  a discussion of the history of the Company, please see Item 4. Information
  on the CompanyHistory and Development of ILOG.

The
  Company is a société anonyme, a form of corporation, incorporated
  under the laws of France. In this section, we summarize material information
  concerning our share capital, together with material provisions of applicable
  French law and our statuts. An unofficial English translation of the
  Companys statuts is included as an exhibit to this Annual Report
  on Form 20-F. You may obtain copies of our statuts in French from the
  Clerk of the Registry of Commerce and Companies of Créteil, France.



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1.

Directors

Each
  Director must own at least one share during his term of office. If, at the time
  of his or her appointment, a Director does not own the required number of shares
  or if, during his or her term of office, he ceases to be the owner thereof,
  he or she shall have a period of three months to purchase such number of shares,
  in default of which he or she shall be automatically deemed to have resigned.

The
  number of Directors who are more than seventy-five (75) years old may not exceed
  one third of the Directors in office. Should such quota be reached during an
  ongoing term of office, the appointment of the oldest Director would be automatically
  terminated at the close of the following Ordinary Shareholders Meeting.

Since
  the statuts do not contain any provisions relating to the Directors
  compensation, the French law described under Item 6 A. and Item 6 C. applies
  without restriction.

The
  conclusion of arrangements or contracts in which a Director is interested is
  subject to the prior consent of our Board of Directors. The statuts refer
  to the applicable French laws described under Item 6 C. Directors, other than
  legal entities, are forbidden to contract loans from the Company in any form
  whatsoever, to secure an overdraft from it, as a current account or otherwise,
  and to have the Company guarantee or secure their commitments toward third parties.
  The same prohibition applies to the permanent representatives of legal entities
  that are Directors. It also applies to spouses, ascendants and descendants of
  the persons referred to in this article, as well as to all intermediaries.

2.

Shareholders
  Meetings and Voting Rights

General

In
  accordance with French law, there are two types of shareholders General
  Meetings, ordinary and extraordinary.

Ordinary
  General Meetings of shareholders are required for matters such as:

·

electing,
  replacing and removing Directors,

·

determining
  Directors fees,

·

appointing
  independent registered public accounting firm,

·

approving
  the annual accounts, and

·

declaring
  dividends or authorizing dividends to be paid in shares.

Following
  the adoption of the ordinance dated June 24, 2004, the issuance of debt securities
  by French commercial companies may now be decided by the Board of Directors,
  and the authorization by the shareholders at the Ordinary Shareholders
  Meeting is no longer necessary.

Extraordinary
  Shareholders Meetings are required for approval of matters such as amendments
  to the Companys statuts and rights of holders of any category of
  shares, including any amendment required in connection with extraordinary corporate
  actions. Extraordinary corporate actions include:

·

changing
  the Companys name or corporate purpose,

·

increasing
  or decreasing the Companys share capital as well as delegating authority
  to the Board of Directors to do so,

·

authorizing
  or deciding the issuance of preferred shares, convertible or exchangeable securities,
  or any other securities giving rights to equity securities, and

·

the
  voluntary liquidation of the Company prior to the end of its statutory term.





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Annual
  Ordinary Meetings

French
  law requires the Companys Board of Directors to convene an annual Ordinary
  Shareholders Meeting for approval of the annual financial statements.
  This meeting must be held within six months of the end of each fiscal year.
  This period may, however, be extended by an order of the President of the Tribunal
  de Commerce (Commercial Court). The Board of Directors may also convene
  an ordinary or extraordinary meeting of shareholders upon proper notice at any
  time during the year. If the Board of Directors fails to convene a shareholders
  meeting, the Companys independent registered public accounting firm may
  call the meeting. In bankruptcy, the Companys liquidator or court-appointed
  agent may also call a shareholders meeting in some instances. Any of the
  following may request the court to appoint an agent:

·

one
  or several shareholders holding at least 5% of the Companys share capital,

·

any
  interested party, in cases of urgency,

·

the
  workers committee in emergency situations,

·

duly
  qualified associations of shareholders who have held their shares in registered
  form for at least two years and who together hold at least a specified percentage
  of the Companys voting rights, or

·

majority
  shareholders in share capital or voting rights after a public tender offer or
  the acquisition of a controlling block of shares.



Notice
  of Shareholders Meetings

The
  Company must announce general meetings at least 30 days in advance by means
  of a preliminary notice, which is published in the Bulletin des Annonces
  Légales Obligatoires, or BALO, and must be sent to the
  AMF prior to publication. This preliminary notice must contain, among other
  things, the time, date and place of the meeting, the agenda, a draft of the
  resolutions to be submitted to the shareholders, a description of the procedures
  that holders of bearer shares must follow to attend the meeting and the procedure
  for voting by mail.

At
  least 15 days prior to the date set for the meetings on first call and at least
  six days before any second call, the Company must publish a final notice (avis
  de convocation) containing among other things, the final agenda, time and
  place of the meeting and other related information. This final notice must be
  sent by mail to all registered shareholders who have held shares for at least
  one month prior to the date of publication of the final notice, and must also
  be published in a newspaper authorized to publish legal announcements in the
  local administrative department (département) in which the Company
  is registered, as well as in the BALO, with prior notice having been given to
  the AMF.

In
  general, shareholders can only take action at shareholders meetings on
  matters listed on the agenda for the meeting. As an exception, shareholders
  may take action with respect to the dismissal of Directors and various matters
  even though these actions have not been included on the agenda.

Additional
  resolutions to be submitted for approval by the shareholders at the meeting
  may be proposed to the Board of Directors within 10 days of the publication
  of the preliminary notice in the BALO by:

·

one
  or several shareholders holding at least 5% of the Companys share capital
  or a specified percentage of shares calculated on the basis of a formula relating
  to the Companys share capital,

·

a
  duly qualified association of shareholders, each held shares in registered form
  for at least two years and who together hold a specified percentage of the voting
  rights calculated on the basis of a formula relating to the Companys issued
  capital, or

·

the
  workers committee.

The
  Board of Directors must submit these resolutions to a vote of the shareholders.

In
  addition, during the two weeks preceding a meeting of shareholders, any shareholder
  may submit written questions to the Board of Directors relating to the agenda
  for the meeting. The Board of Directors is then obliged to respond to these
  questions, so long as they relate to the agenda.



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Attendance
  and Voting at Shareholders Meetings

Each
  Share confers on a shareholder the right to one vote. Shareholders may attend
  Ordinary General Meetings and Extraordinary General Meetings and exercise their
  voting rights, subject to the conditions specified in French law and the Companys
  statuts. There is no requirement that a shareholder have a minimum number
  of shares in order to attend or to be represented at an Ordinary or Extraordinary
  General Meeting or to vote by mail or, upon decision of the Board, by videoconference
  or by other means of telecommunication which allow shareholders to be identified.

According
  to the Companys statuts, in order to participate in any general
  meeting, a holder of shares held in registered form must have its shares registered
  in its name in a shareholder account maintained by the Company or on the Companys
  behalf by an agent appointed by the Company at least one day prior to the date
  of the meeting.

A
  holder of bearer shares must obtain a certificate from the accredited intermediary
  with whom the holder has deposited its shares. This certificate must indicate
  the number of bearer shares the holder owns and must state that these shares
  are not transferable until the time fixed for the meeting. The holder must deposit
  this certificate at the place specified in the notice of the meeting at least
  one day before the meeting. For a description of certain voting procedures for
  ADS holders, see Item 3. D.  Holders of ADSs may be subject to additional
  risks related to holding ADSs rather than Shares.

The
  Companys statuts provide that shareholders may, if the Board of
  Directors so approve when the meeting is convened, participate in a shareholders
  meeting by videoconference or by other means of telecommunication provided shareholder
  identification is possible in accordance with applicable laws and regulations.

Proxies
  and Votes by Mail

In
  general, all shareholders who have properly registered their Shares or duly
  presented a certificate from their accredited financial intermediary may participate
  in general meetings. Shareholders may participate and vote in general meetings
  either in person, by proxy, by mail, or upon decision of the Board, by videoconference
  or by any other means of telecommunication which allows shareholders to be identified.

Proxies
  will be sent to any shareholder on request with, among other things, the text
  of the resolutions to be passed at the relevant meeting. In order to be counted,
  such proxies must be received at the Companys registered office, or at
  any other address indicated on the notice convening the meeting, prior to the
  date of the meeting. A shareholder may grant proxies to his or her spouse or
  to another shareholder, or if the shareholder is not a French resident, by an
  intermediary declaring his position as an intermediary holding shares on behalf
  of beneficial owners as set forth by French law. A shareholder that is a corporation
  may grant proxies to a legal representative. Alternatively, the shareholder
  may send the Company a blank proxy without nominating any representative. In
   this case, the chairman of the meeting will vote the blank proxies in
  favor of all resolutions proposed or agreed by the Board of Directors and against
  all others.

With
  respect to votes by mail or email, the Company must send shareholders a voting
  form. The completed form must be returned to the Company at least three days
  prior to the date of the shareholders meeting.

Quorum

French
  law requires that shareholders having at least 20% of the shares entitled to
  voting rights must be present in person or voting by mail, by proxy or by videoconference
  or by any other means of telecommunication that allows shareholders to be identified
  to satisfy  the quorum requirement for:

·

an
  Ordinary General Meeting, and

·

an
  Extraordinary General Meeting where an increase in the Companys share
  capital is proposed through incorporation of reserves, profits or share premium.



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The
  quorum requirement is 25% of the shares entitled to voting rights, on the same
  basis, for any other Extraordinary General Meeting.

If
  a quorum is not present at a meeting, the meeting is adjourned. When an adjourned
  ordinary meeting is resumed, there is no quorum requirement. No quorum is required
  when an adjourned meeting is resumed only to approve an increase in the Companys
  share capital through incorporation of reserves, profits or share premium. In
  the case of any other resumed meeting, shareholders having at least 20% of outstanding
  voting rights must be present in person or voting by mail or by proxy and, or
  upon decision of the Board, by videoconference or by any means of telecommunication
  allowing them to be identified for a quorum. If a quorum is not present, the
  reconvened meeting may be adjourned for a maximum of two months. No deliberation
  by the shareholders may take place without a quorum. However, only questions
  which were on the agenda of the adjourned meeting may be discussed and voted
  upon.

Majority

A
  simple majority of shareholders may pass a resolution at either an Ordinary
  General Meeting or an deciding upon a capital increase by incorporation of reserves,
  profits or share premium. At any other meetings, a two-thirds majority of the
  shareholder votes cast is required.

A
  unanimous shareholder vote is required to increase liabilities of shareholders.

Abstention
  from voting by those present either in person, by videoconference or by any
  means of telecommunication allowing shareholders to be identified, or those
  represented by proxy or voting by mail is counted as a vote against the resolution
  submitted to a shareholder vote.

In
  general, each shareholder is entitled to one vote per share at any general meeting.
  Under French law, shares of a company held by entities controlled directly or
  indirectly by that company are not entitled to voting rights and do not count
  for quorum or majority purposes.

Financial
  Statements and Other Communications with Shareholders

In
  connection with any shareholders meeting, the Company must provide a set
  of documents, including the Companys Annual Report and a summary of the
  results of the five previous fiscal years, to any shareholder who so requests.
  French law requires that a special report be provided to the Ordinary Shareholders
  Meeting regarding stock options authorized and/or granted by the Company.

3.

Dividends

The
  Company may only distribute dividends out of the Companys distributable
  profits, plus any amounts held in the Companys reserve which the
  shareholders decide to make available for distribution, other than those reserves
  which are specifically required by law or the Companys statuts.
  Distributable profits consist of the Companys unconsolidated
  net profit in each fiscal year, as increased or reduced by any profit or loss
  carried forward from prior years, less any contributions to the reserve accounts
  pursuant to French law or the Companys statuts.

Legal
  Reserve

French
  law provides that each French société anonyme, such as the
  Company, must allocate 5% of its unconsolidated statutory net profit for each
  year to its legal reserve fund before dividends may be paid with respect to
  that year. Funds must be allocated until the amount in the legal reserve is
  equal to 10% of the aggregate par value of the share capital. This restriction
  of payment of dividends also applies to each of the Companys French subsidiaries
  on an unconsolidated basis. The legal reserve of any company subject to this
  requirement may only be distributed to shareholders upon liquidation of the
  company.



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Approval
  of Dividends

According
  to French law, the Board of Directors may propose a dividend for approval by
  the shareholders at the annual general meeting of shareholders. If the Company
  has earned distributable profits since the end of the preceding fiscal year,
  as reflected in an interim income statement certified by the Companys
  independent registered public accounting firm, the Board of Directors may distribute
  interim dividends, to the extent of the distributable profits for the period
  covered by the interim income statement. The Board of Directors may declare
  such dividends, subject to French law, and may do so, for interim dividends
  paid in cash, without obtaining shareholder approval. For interim dividends
  paid in Shares, prior authorization by an ordinary shareholders meeting
  is required.

Distribution
  of Dividends

If
  a priority dividend is paid in full, dividends are distributed to shareholders
  pro-rata according to their respective holdings of Shares. Outstanding dividends
  are payable to shareholders on the date of the shareholders meeting at
  which the distribution of dividends is approved. In the case of interim dividends,
  distributions are made to shareholders on the date of the Board of Directors
  meeting in which the distribution of interim dividends is approved. The actual
  dividend payment date is decided by the shareholders in an Ordinary General
  Meeting or by the Board of Directors in the absence of such a decision by the
  shareholders.

In
  addition, the Companys statuts authorize the shareholders, in an
  ordinary meeting, to authorize the grant to each shareholder an option to receive
  all or part of any annual or interim dividends in either cash or shares.

Timing
  of Payment

According
  to French law, the Company must pay any dividends within nine months of the
  end of the Companys fiscal year, unless otherwise authorized by court
  order. Dividends on shares that are not claimed within five years of the date
  of declared payment revert to the French State.

4.

Changes
  in Share Capital

Increases
  in Share Capital

As
  provided by French law, the Companys share capital may be increased only
  with the shareholders approval at an Extraordinary General Meeting following
  a recommendation of the Board of Directors. Increases in the Companys
  share capital may be effected by:

·

issuing
  additional Shares,

·

increasing
  the nominal value of existing shares, or

·

issuing
  a new class of shares such as preferred shares.

Increases
  in share capital by issuing additional ordinary or preferred shares or a new
  class of shares may be effected by issuing such securities:

·

for
  cash,

·

for
  assets contributed in kind,

·

by
  conversion, exchange or redemption of debt securities convertible, redeemable
  or exchangeable into the Companys Shares,

·

upon
  the exercise of stock options, warrants or other similar securities comprising
  rights to subscribe for the Companys Shares,

·

by
  capitalization of profits, reserves or share premiums,

·

subject
  to various conditions, in satisfaction of debt incurred by the Company, or

·

any
  combination of the above.



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Decisions
  to increase the share capital through the capitalization of reserves, profits
  and/or share premiums require the approval of an Extraordinary General Meeting,
  acting under the quorum and majority requirements applicable to Ordinary Shareholders
  Meetings. Increases effected by an increase in the nominal value of shares require
  unanimous approval of the shareholders, unless effected by capitalization of
  reserves, profits or share premiums. All other capital increases require the
  approval of an Extraordinary General Meeting. However, since the enactment of
  the ordinance related to the issuance of securities by French commercial companies
  on June 24, 2004, the Extraordinary General Meeting may delegate to the Board
  of Directors its powers to decide, within certain limits, upon capital increases.

The
  shareholders may delegate the right to carry out any increase in share capital
  (and subject to certain conditions may authorize the board to issue shares in
  remuneration of a contribution in-kind, when the contribution in-kind is made
  under the form of an exchange offer) to the Board of Directors, provided that
  this increase has been previously authorized by the shareholders. The Board
  of Directors may further sub-delegate this right to the Companys Chairman
  and Chief Executive Officer. Each time the shareholders decide on a capital
  increase or decide to delegate to the Board of Directors the right to carry
  out a capital increase, they must decide on whether or not to proceed with a
  capital increase reserved to employees of the Company and its subsidiaries or
  whether or not to delegate to the Board of Directors the right to carry out
  such reserved capital increase.

Decreases
  in Share Capital

According
  to French law, any decrease in the Companys share capital requires approval
  by the shareholders entitled to vote at an Extraordinary General Meeting. In
  the case of a capital reduction, other than a reduction to absorb losses or
  a reduction as part of a program to purchase the Companys own shares,
  all holders of shares must be offered the possibility to participate in such
  a reduction. The share capital may be reduced either by decreasing the nominal
  value of the outstanding share capital or by reducing the number of outstanding
  shares. The number of outstanding shares may be reduced either by an exchange
  of shares or by the repurchase and cancellation of shares. Holders of each class
  of shares must be treated equally unless each affected shareholder agrees otherwise.

5.

Preemptive
  Subscription Rights

According
  to French law, if the Company issues new securities for cash giving rights,
  either immediately or at a later date, to subscribe to the Companys new
  shares, current shareholders will have preemptive subscription rights to these
  securities on a pro-rata basis. These preemptive rights require the Company
  to give priority treatment to those shareholders. Preemptive subscription rights
  are transferable during the subscription period relating to a particular offering
  of shares. These rights may also be listed on Euronext Paris or any relevant
  stock exchange.

A
  two-thirds majority of the Shares entitled to vote at an Extraordinary General
  Meeting may vote to waive preemptive subscription rights with respect to any
  particular offering. French law requires that the Board of Directors and the
  Companys independent registered public accounting firm present reports
  that specifically address any proposal to waive preemptive subscription rights.
  In the event of a waiver, the issue of securities must be completed within the
  period prescribed by law. The shareholders may also decide at an Extraordinary
  General Meeting to give existing shareholders a non-transferable priority right
  to subscribe to such new equity securities during a limited period of time.
  Shareholders also may notify the Company that they wish to waive their own preemptive
  subscription rights with respect to any particular offering if they so choose.

6.

Form,
  Holding and Transfer of Shares

Form
  of Shares

The
  Companys statuts provide that the Shares may be held in registered
  or bearer form.

Right
  to own shares

The
  statuts contain no other limitations on the rights to own securities,
  other than the indication that the Company may require the repurchase, subject
  to the conditions set forth in article L. 228-35-10 of the Commercial Code,
  either of all



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of
  its shares with a preferential dividend and no voting right, or of a category
  of such shares. The Company has not issued any of such shares.

Holding
  of Shares

In
  accordance with French law concerning dematerialization of securities, ownership
  of shares are not represented by share certificates but by book entries.

The
  Company maintains a share account with Euroclear France (Euroclear)
  in respect of all Shares in registered form, which is administered by BNP Paribas
  Securities Services. In addition, the Company maintains separate accounts in
  the name of each shareholder either directly, or, at the shareholders
  request, through his accredited intermediary. Each shareholder account shows
  the name of the holder and the number of Shares held through an accredited intermediary,
  the shareholder account shows that the Shares are held through such intermediary.
  BNP Paribas Securities Services, as a matter of course, issues confirmations
  to each registered shareholder as to Shares registered in the shareholders
  account, but these confirmations do not constitute documents of title.

Shares
  held in bearer form are held on the shareholders behalf in an account
  maintained by an accredited intermediary and are registered in an account maintained
  by such accredited intermediary with Euroclear. This account is separate from
  the Companys account with Euroclear. Each accredited intermediary maintains
  a record of shares held through it and will issue certificates of registration
  in respect thereof. The Companys statuts permit the Company to
  request that Euroclear provide the Company at any time with the identity of
  the holders of the Companys shares or other securities granting immediate
  or future voting rights, held in bearer form, and with the number of Shares
  or other securities so held.

In
  addition, according to French law, Shares held by non-French residents may be
  held by an intermediary on the shareholders behalf in a collective account
  or in several individual accounts. The intermediary must declare its position
  as an intermediary holding Shares on behalf of the beneficial owner. Consequently,
  the owner of Shares recorded in the collective account or in several individual
  accounts by an intermediary will be represented in shareholders meetings
  by this intermediary.

Transfer
  of Shares

The
  Companys statuts do not contain any restrictions relating to the
  transfer of Shares.

Registered
  Shares must be converted into bearer form before being sold on Euronext Paris
  and, accordingly, must be registered in an account maintained by an accredited
  intermediary. A shareholder may initiate a transfer by giving instructions to
  the relevant accredited intermediary.

A
  fee or commission is payable to the French broker, accredited intermediary or
  other agent involved in the transaction regardless of whether the transaction
  occurs within or outside France. No registration duty is normally payable in
  France, unless a transfer instrument has been executed in France.

7.

Liquidation
  Rights

If
  the Company is liquidated, any assets remaining after payment of the Companys
  debts, liquidation expenses and all of the Companys remaining obligations
  will be distributed first to repay in full the nominal value of the Companys
  Shares. Any surplus will be distributed pro-rata among shareholders in proportion
  to the nominal value of their shareholdings.

8.

Requirements
  for Holdings Exceeding Certain Percentages

French
  law provides that any individual or entity (including a holder of ADSs) holding
  the Shares through a financial intermediary, acting alone or in concert with
  others, that becomes the owner, directly or indirectly, of more than 5%, 10%,



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15%,
  20%, 25%, 33 1/3%, 50%, 66 2/3%, 90% or 95% of the outstanding shares or the
  voting rights of a listed company in France such as the Company, or that decreases
  its shareholding or voting rights above or below any of these percentages, must
  notify the company within five trading days of the date it crosses each threshold
  of the number of shares or ADSs it holds and their voting rights. The individual
  or entity must also notify the AMF within five trading days of such date of
  the number of equity securities it holds and the voting rights attached thereto.
  The AMF publicly releases the notice.

French
  law and the AMF impose additional reporting requirements on persons, acting
  alone or in concert with others, who acquire more than 10% or 20% of the outstanding
  shares or voting rights of a listed company. These persons must file with the
  AMF and such listed company, a report within ten trading days of the date such
  thresholds being crossed. In this report the acquirer must specify its intentions
  for the following 12-month period including whether or not such person or persons
  intend to continue its purchases, to acquire the control of such company or
  to seek a nomination to the companys Board of Directors. This report must
  be filed with the AMF and such listed company. The AMF publicly releases the
  notice. The acquirer must also publish a press release stating its intentions
  in a financial newspaper of national circulation in France. The acquirer may
  amend its stated intentions, provided that it does so on the basis of significant
  changes in its own situation or its shareholders. Upon any change of intention,
  it must file a new report.

Under
  the regulations of the AMF, and subject to limited exemptions granted by the
  AMF, any person or persons acting in concert who comes to own more than 33 1/3%
  of the share capital or voting rights of a French listed company must initiate
  a public tender offer for the balance of the share capital of such company.

In
  order to permit shareholders to give the notice required by law, the Company
  must publish information with respect to the total number of voting rights outstanding
  as of the date of the Companys annual general meeting in the BALO not
  later than 15 calendar days after such meeting. In addition, if the number of
  outstanding voting rights changes by at least 5% or more between two Ordinary
  General Meetings, the Company must publish in the BALO, within 15 calendar days
  of such change, the number of voting rights then outstanding and provide the
  AMF with a written notice. The AMF publishes the total number of voting rights
  so notified by all listed companies in a weekly notice (décision et
  information), mentioning the date each such number was updated. In order
  to facilitate compliance with the notification requirements, the form of threshold-crossing
  declaration form is available in English on the website of the AMF: www.amf-france.org.

In
  the case of a violation of the notification requirements provided for under
  French law, the undeclared share capital interest in excess of the required
  notification level will be deprived of voting rights for all shareholders
  meetings until the end of a two-year period following the date on which the
  owner thereof complies with such notification requirement. In addition, any
  shareholder who fails to comply with the above legal requirements may have all
  or part of its voting rights suspended for up to five years by the Commercial
  Court at the request of the Company’s chairman, any shareholder or the
  AMF, and may be further subject to a €18,000 fine.

The
  Company’s statuts do not contain any provisions governing the ownership
  threshold above and below which shareholder ownership must be disclosed. Accordingly,
  only legal provisions described above shall apply.

9.

Purchase
  of the Companys Own Shares

Under
  French law, the Company may not subscribe to an issuance of its own shares.
  However, the Company may, directly or through an intermediary acting on its
  behalf, acquire, up to 10% of the Companys share capital not to exceed
  15 million euros.

The
  Company must hold any Shares it repurchases in registered form. These Shares
  also must be fully paid up. Shares repurchased by the Company are deemed outstanding
  under French law but are not entitled to dividends or voting rights, and the
  Company may not exercise any preemptive subscription rights attached to them.

The
  shareholders, at an Extraordinary General Meeting, may decide not to take these
  Shares into account in determining the preemptive subscription rights attached
  to other Shares. However, if the shareholders decide to take them into account,
  the Company must either sell the rights attached to the Shares the Company holds
  on the market before the end of the subscription period or distribute them to
  the other shareholders on a pro rata basis.



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On
  November 29, 2005, the shareholders will be asked to authorize the Board of
  Directors to repurchase up to 10% of the Companys total outstanding share
  capital at a maximum purchase price of €20 and a minimum sale price of
  €5. The resolution will provide that the total amount of such repurchase
  may not exceed 15 million euros to, among other things:

a)

reduce
  the Company’s share capital by canceling such acquired shares, with approval
  of the Companys shareholders at an Extraordinary General Meeting,

b)

provide
  Shares for distribution to the Companys employees under a profit-sharing
  plan or stock option plan or,

c)

distribute
  or exchange share capital in connection with an acquisition,

d)

the
  liquidity of the Shares market through a liquidity contract entered into with
  an investment services provider.

This
  authorization will void and replace the authorization which was granted by the
  shareholders at the Companys Ordinary Shareholders Meeting held on November
  30, 2004. The authorization granted on November 30, 2004 has been used to repurchase
  259,901 shares as of August 31, 2005 (ILOG has published forms 6K forms detailing
  repurchases of shares).

The
  new authorization, if approved by the shareholders, will expire on the date
  of the Ordinary Shareholders Meeting called to approve the accounts for
  the fiscal year ending June 30, 2006.

10.

Trading
  in the Companys Shares

Under
  the general regulation of the AMF and the European Regulation EC 2273/2003,
  as amended, we may trade in our own Shares in buy-back programs
  or to stabilize the trading of our Shares.

To
  be valid, a buy-back program must aim at reducing the capital of an issuer or
  to meet obligations arising from any of the following:

·

debt
  financial instruments exchangeable into equity instruments,

·

employee
  share option programs or other allocations of shares to employees of the issuer
  or of an affiliate company,

·

implementation
  in connection with market practice recognized by the AMF. As of
  the date of filing of this Annual Report, the AMF has recognized two market
  practices: (i) the buy-back of shares in order to exchange them or use them
  as a means of payment in the framework of external growth transactions and (ii)
  the buy back of shares in the framework of liquidity agreements.

Moreover,
  any trade executed in the framework of a buy-back program is valid if it meets
  the following three requirements:

·

The
  issuer must not, when executing trades under a buy-back program, purchase shares
  at a price higher than the higher of the price of the last independent trade
  and the highest current independent bid on the market where the purchase is
  carried out,

·

When
  ILOG carries out the purchase of own shares through derivative financial instruments,
  the exercise price of those derivative financial instruments shall not be above
  the higher of the price of the last independent trade and the highest current
  independent bid,

·

ILOG
  must not purchase more than 25% of the average daily trading volume of the Shares
  in any one day on the regulated market on which the purchase is carried out.

There
  are two periods during which ILOG is not permitted to trade in its own securities:
  (i) during the period where the issuer has decided to delay the public disclosure
  of inside information and (ii) during the period of fifteen days preceding the
  publication of consolidated annual accounts, quarterly or semi-annual accounts.

Prior
  to the start of trading, full details of the program must be disclosed to the
  public. ILOG must declare, by publishing a press release on the website of the
  AMF and ILOGs website, every share repurchase no later than 7 trading



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days
  after such transactions. ILOG must also file with the AMF on a monthly basis
  all share repurchase transactions made during the 24 month period preceding
  such filing.

According
  to the French statute dated July 26, 2005, the Board of Directors must present,
  on an annual basis, to the shareholders meeting, a specific report regarding
  the share repurchase transactions, including the number, the price and the volume
  of the acquired shares and all changes to the initial objective.

Last,
  ILOG may trade on its own Shares to stabilize the market. However, this trading
  can be carried out only for a limited time period after a securities offering.
  Detailed information should then be disclosed to the market. Such trading shall
  not in any circumstances be executed above the price of the offering.

C.

Material
  Contracts

None.

D.

Exchange
  Controls

Exchange
  Controls

Under
  current French exchange control regulations, there are no limitations on the
  amount of cash payments that may be remitted by ILOG to non-residents. Laws
  and regulations concerning foreign exchange controls do require, however, that
  all payments or transfers of funds made by a French resident to a non-resident
  be handled by an authorized intermediary. The payment of any dividends to foreign
  shareholders must be effected through an authorized intermediary. All registered
  banks and substantially all credit establishments in the Republic of France
  are authorized intermediaries.

Ownership
  of ADSs or Shares by Non-French Residents

Under
  French law, there is no limitation on the right of non-French residents or non-French
  shareholders to own, or where applicable, to vote securities of a French company.
  However, holders of ADSs may have to follow certain specific procedures, see
  Item 3 D. Holders of ADSs may be subject to additional risks related
  to holding ADSs rather than Shares.

A
  French law dated February 14, 1996 abolished the requirement that a person who
  is not a resident of the European Union obtain an autorisation préalable,
  or prior authorization, prior to acquiring a controlling interest in a French
  company. However, pursuant to the Decree no 2003-196 of March 7, 2003, the acquirer/investor
  must file a déclaration administrative, or administrative notice,
  with French authorities in connection with certain foreign investments, direct
  investments and market foreign investments in any French company. Such déclaration
  administrative must also be filed in connection with certain investments
  made by a French company under foreign control. Under existing administrative
  rulings, ownership of more that 33.33% of a French companys share capital
  or voting rights is, for instance, regarded as a direct investment subject to
  a déclaration administrative. A declaration for statistical
  purposes must also be made upon the acquisition or divestiture of at least 10%
  of the shares.

E.

Taxation

The
  following is a general summary of certain French tax and material U.S. federal
  income tax consequences of owning and disposing of shares or ADSs. This discussion
  applies only to U.S. Holders. You will be a U.S. Holder if you are a beneficial
  owner of shares or ADSs, you hold your shares or ADSs as capital assets and
  the following two conditions apply to you:

·

You
  are any one of the following for U.S. federal income tax purposes: an individual
  who is a citizen or resident of the United States; a corporation, or other entity
  taxable as a corporation, created or organized under the laws of the United
  States or any political subdivision thereof; an estate the income of which is
  subject to U.S. federal income tax regardless of its source; or a trust if (1)
  a court within the United States is



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able
  to exercise primary supervision over the administration of the trust and one
  or more U.S. persons have the authority to control all substantial decisions
  of the trust, or (2) it has an election in effect to be treated as a United
  States person under U. S. federal income tax law; and

·

You
  are entitled to the benefits of the Convention between the Government of the
  United States of America and the Government of the French Republic for the Avoidance
  of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes
  on Income and Capital, signed August 31, 1994 (the Treaty).

This
  summary does not purport to address all of the tax consequences to U.S. Holders.
  It also does not take into account the specific circumstances of any particular
  U.S. Holder although such circumstances might materially affect the general
  tax treatment of such U.S. Holder. This summary does not address all aspects
  of U.S. federal income taxation that may apply to U.S. Holders that are subject
  to special tax rules, without limitation, including U.S. expatriates, insurance
  companies, tax-exempt organizations, financial institutions, persons subject
  to the alternative minimum tax, securities-broker dealers, holders that directly,
  indirectly or by attribution own 10% or more of our outstanding shares of capital
  or voting stock, persons holding their shares or ADSs as part of a straddle,
  hedging transaction or conversion transaction, persons who acquired their shares
  or ADSs pursuant to the exercise of employee stock options or similar derivative
  securities or otherwise as compensation, or persons whose functional currency
  is not the U.S. dollar.  The discussion below does not address the tax
  treatment of partnerships or persons who hold shares or ADSs through a partnership
  or other pass-through entity. U.S. Holders of shares or ADSs are advised to
  consult their own tax advisors, with respect to the U.S. federal, state and
  local tax consequences, French tax consequences, and other tax consequences
  of the ownership and disposition of shares or ADSs and their eligibility for
  benefits under the Treaty.

For
  U.S. federal income tax purposes, U.S. Holders of our ADSs will be treated as
  owners of the underlying shares represented by such ADSs.

This
  summary is based on the tax laws of the United States and France, the Treaty
  and interpretations thereof by the relevant tax authorities that are currently
  in effect as of the date of this Annual Report on Form 20-F, and all of which
  are subject to change or changes in interpretation and as such, U.S. Holders
  may be subject to tax consequences different from those set forth below. The
  statements of French and U.S. tax laws set out below assume that each obligation
  in the Deposit Agreement and any related agreement will be performed in accordance
  with its terms, and possibly with retroactive effect.

FRANCE

Withholding
  Tax

Dividends
  paid by French corporations to non-resident holders generally are subject to
  a 25% French withholding tax. However, dividends paid to non-resident holders
  who establish their entitlement to treaty benefits under an applicable income
  tax treaty prior to the payment of a dividend may be subject to a reduced rate
  (generally 15%) of such withholding tax.

Under
  the Treaty, dividends paid to U.S. Holders that are not effectively connected
  to a permanent establishment or fixed base maintained in France are subject
  to a reduced rate of 15% for U.S. Holders owning less than 10% of the outstanding
  shares of ILOG or 5% for U.S. corporate holders owning directly or indirectly
  at least 10% of the outstanding shares of ILOG.

The
  benefit of the reduced withholding tax rate is generally conditioned on the
  filing with the French tax authorities, prior to the date of dividend payment
  of a form claiming treaty benefits. In addition, a corporate U.S. holder must
  file an affidavit certifying that it is the beneficial owner of the dividends.

Dividend
  Tax Credit (Avoir Fiscal)

When
  French resident shareholders receive dividends from French corporations, the
  shareholders are deemed to have paid a portion of income taxes paid by the French
  corporation and as such, include this amount of deemed taxes paid



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in
  their own income.  The French resident shareholder is then eligible to
  claim a credit, known as the avoir fiscal, against personal tax liability
  in the amount of taxes deemed paid by the shareholder.  If the credit exceeds
  the liability, the shareholder receives a refund; if liability exceeds the credit,
  the shareholder must pay the difference.  Under the Treaty, dividends paid
  by a French corporation to shareholders who are U.S. residents under the Treaty
  are generally eligible for a refund of the avoir fiscal, which is received
  as a cash payment from the French government.  However, the 2004 French
  Finance Act abolished the avoir fiscalwith respect to dividends distributed
  to corporations on or after January 1, 2004 and to individuals on or after January
  1, 2005.

With
  respect to French resident individuals, the avoir fiscalis replaced
  for dividends paid on or after January 1, 2005, by a tax allowance of 50% applicable
  to amounts distributed. In addition, the shareholder benefits from a tax credit
  equal to 50% of the distributed amounts, subject however to a maximum credit
  amount of € 115 or € 230 according to the familial situation of
  the taxpayer.

The
  2004 French Finance Act does not clarify the situation of nonresident recipients
  entitled to the avoir fiscalunder a bilateral treaty concluded with
  France, such as the Treaty.

Individuals
  who are U.S. residents under the Treaty remain entitled to the avoir fiscalin respect to dividends paid to them in 2004. However, dividends paid to
  them on or after January 1, 2005 would no longer carry an avoir fiscal,
  and the latter should not be replaced by the above-mentioned tax allowance of
  50%, applicable to French resident individuals only, unless the French tax authorities
  issue guidance providing the contrary. However, nonresident individuals should
  benefit from (i) the tax credit equal to 50% of the distributed amounts, subject
  however to a maximum credit amount of € 115 or € 230 according
  to the familial situation of the taxpayer, and, as the case may be (ii) a refund
  of such tax credit, subject to guidance to be issued by the French tax authorities.
  Other U.S. residents, such as corporations, pension trusts and tax-exempt organizations,
  should no longer benefit from a refund of the avoir fiscalon or after
  January 1, 2005 with respect to dividends distributed on or after January 1,
  2004.

Due
  to the recent changes in the French dividend distribution legislation and to
  the presently uncertain French treatment of nonresident dividend recipients,
  U.S. Holders are urged to consult their own tax advisors with respect to the
  tax consequences of the above-mentioned new rules on their own situation.

Equalization
  Tax (Précompte)

Dividends
  paid out of profits that have not been taxed at the ordinary corporate rate,
  or were earned and taxed more than five years before the distribution, are subject
  to an equalization tax called the précompte, which is payable by
  the French distributing corporation to the French tax authorities. The equalization
  tax generally is equal to one-half of the amount of the dividend paid to shareholders
  prior to deduction of withholding tax. When a tax treaty does not provide for
  a refund of the dividend tax credit, or when a non-resident shareholder is not
  entitled to such a refund but is otherwise entitled to the benefits of the tax
  treaty, then a qualifying shareholder may generally obtain from the French tax
  authorities a payment equal to 100% of the equalization tax actually paid in
  cash by the distributing corporation, net of applicable withholding tax. These
  rules will be applicable to distributions made through December 31, 2004.

Distributions
  made by French corporations from 2005 on will no longer be subject to the equalization
  tax. However, an extraordinary levy will apply to distributions made in 2005
  out of profits that have not been taxed at the ordinary corporate tax rate,
  or which were earned and taxed more than five years before the distribution.
  This extraordinary levy will be equal to 25% of the amount of the dividends
  paid to the shareholder. Unlike the equalization tax, this extraordinary levy
  will not be refundable to non-resident shareholders.

Distributions
  made as from 2006 will not give rise to an equalization or extraordinary tax
  liability.

Taxation
  of Capital Gains

In
  general, a U.S. Holder will not be subject to French tax on any capital gain
  derived from the sale or exchange of shares or ADSs, except where such gain
  is effectively connected with permanent establishment or fixed base maintained
  by



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the
  U.S. Holder in France. Special rules apply to U.S. Holders who are individuals
  and are residents of more than one country.

Transfer
  Tax on Sale of Shares

A
  1% transfer tax capped at €3,049 per transfer applies to certain transfers
  of shares or ADSs in French corporations. The transfer tax does not apply to
  transfers of shares or ADSs in French publicly-traded companies that are not
  evidenced by a written agreement, or where that agreement is executed outside
  France. Therefore, U.S. Holders should not be liable to pay the 1% transfer
  tax on the sale or disposition of the shares or ADS provided such sale or disposition
  is not evidenced by a written agreement or such agreement is not executed in
  France.

Estate
  and Gift Taxes

Under
  the estate and gift tax convention between the United States and France, a transfer
  of shares or ADSs by gift or by reason of the death of a U.S. Holder entitled
  to benefits under that convention will not be subject to French gift or inheritance
  tax, so long as the donor or decedent was not domiciled in France at the time
  of the transfer, and the shares or ADSs were not used or held for use in the
  conduct of a business or profession through a permanent establishment or fixed
  base in France.

Wealth
  Tax

The
  French wealth tax does not generally apply to shares or ADSs of a U.S. Holder
  if such holder is a resident of the United States for purposes of the Treaty.

UNITED
  STATES

Taxation
  of Dividends

Subject
  to the discussion under Passive Foreign Investment Company Rules,
  the gross amount of any dividend paid (before reduction for French withholding
  taxes) to a U.S. Holder, other than certain pro rata distributions of our shares,
  will generally be included in the gross income of a U.S. Holder as ordinary
  dividend income to the extent paid or deemed paid out of our current or accumulated
  earnings and profits (as determined for U.S. federal income tax purposes) on
  the day the amount is actually or constructively received by the U.S. Holder
  in the case of shares, or by the depositary in the case of ADSs. The gross amount
  of any avoir fiscal also will be treated as dividend income.  With
  respect to the 50% tax credit beginning on January 1, 2005, it is possible (no
  formal guidance has been issued) that the gross amount of the 50% tax credit
  discussed above will not be treated as dividend income. These dividends will
  not be eligible for the dividends-received deduction generally allowed to U.S.
  corporations.

Qualified
  dividend income received by non-corporate U.S. Holders for this tax year
  and in taxable years beginning before January 1, 2009, generally will be taxed
  at a maximum U.S. federal rate of 15% (rather than the higher rates of tax generally
  applicable to other items of ordinary income) provided certain holding period
  and other requirements are met. For this purpose, qualified dividend income
  generally includes dividends paid on stock in certain non-U.S. corporations
  if, among other things, (i) the shares of the non-U.S. corporation are readily
  tradable on an established securities market in the United States, or (ii) the
  non-U.S. corporation is eligible with respect to substantially all of its income
  for the benefits of a comprehensive income tax treaty with the United States
  which contains an exchange of information program. The Treaty has been identified
  by the U.S. Treasury as a qualifying treaty. We currently anticipate that if
  we were to pay any dividends with respect to our shares or ADSs, they should
  constitute qualified dividend income for U.S. federal income tax
  purposes and that qualified non-corporate U.S. Holders should be entitled to
  the reduced rates of tax, as applicable. Dividends paid by us will not qualify
  for reduced rates if we are a passive foreign investment company in the year
  in which the dividends are paid or in the preceding tax year.  The ability
  of a taxpayer to utilize any foreign tax credits attributable to qualified dividend
  income is subject to limitations and you are urged to consult your own tax adviser
  regarding the impact of these limitations in your particular situation.



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A
  distribution with respect to our shares or ADSs in excess of our current and
  accumulated earnings and profits will be treated as a tax-free return of basis
  in the shares or ADSs to the extent of the U.S. Holders adjusted basis
  in such shares or ADSs, with the balance of the distribution, if any, treated
  as capital gain realized by the U.S. Holder from the sale, exchange or other
  disposition of the shares or ADSs.

The
  amount of any distribution paid in euros will be included in a U.S. Holders
  income at an amount equal to the U.S. dollar value of the euro based on the
  exchange rate in effect on the date of receipt by the U.S. Holder in the case
  of shares, or by the depositary in the case of ADSs, regardless of whether the
  payment is converted into U.S. dollars. If the euro received as a distribution
  is not converted into U.S. dollars on the date of receipt, a U.S. Holder generally
  should not be required to recognize foreign currency gain or loss in respect
  of the distribution.  However, the U.S. Holder will be required to include
  gain or loss in income if the U.S. Holder later exchanges the euros for U.S.
  dollars.  The gain or loss will be equal to the difference between the
  U.S. dollar value of the amount that the U.S. Holder includes in income when
  the dividend is received and the amount that the U.S. Holder receives on the
  exchange of euros for U.S. dollars. Gain or loss, if any, recognized by a U.S.
  Holder will generally be a United States source ordinary income or loss.

Subject
  to certain limitations including a holding period requirement, U.S. Holders
  may elect to claim a credit against their U.S. federal income tax liability
  for French tax withheld in accordance with the Treaty from dividends paid by
  us, or if they do not elect to credit any foreign tax for the taxable year,
  they may deduct such tax. For foreign tax credit limitation purposes, dividends
  paid by us will generally be foreign source income.  Any distribution in
  excess of our current and accumulated earnings and profits generally will not
  give rise to foreign source income and a U.S. Holder will not be able to use
  the foreign tax credit arising from any French withholding tax imposed on such
  distribution unless such credit can be applied (subject to applicable limitations)
  against U.S. federal income tax due on other foreign source income.

Taxation
  of Dispositions

Subject
  to the discussion under Passive Foreign Investment Company Rules,
  a U.S. Holder will recognize capital gain or loss for United States federal
  income tax purposes on a sale or other disposition of shares or ADSs in an amount
  equal to the difference between the U.S. dollar value of the amount realized
  and the U.S. Holders tax basis in the shares or ADSs. Such gain or loss
  will be long-term capital gain or loss if the U.S. Holders holding period
  for such shares or ADSs exceeds one year. Long-term capital gain of a non-corporate
  U.S. Holder is generally subject to a maximum tax rate of 15%. For corporate
  U.S. Holders, capital gains are currently taxed at the same rate as ordinary
  income. The deductibility of a capital loss, however, is subject to limitations
  for both non-corporate and corporate U.S. Holders.  Any capital gain or
  loss that a U.S. Holder recognizes will generally be treated as United States
  source.

Passive
  Foreign Investment Company Rules

Certain
  United States federal income tax rules apply to holders of equity interests
  in a foreign corporation classified as a passive foreign investment company,
  or PFIC. We would be a PFIC for United States federal income tax purposes if
  75% or more of our gross income for a taxable year were to consist of passive
  income, or 50% or more of our average assets held during a taxable year were
  to consist of passive assets. Based on our current and projected financial data,
  we believe that we will not currently be treated as a PFIC for U.S. federal
  income tax purposes. However, there can be no assurance that we will not be
  considered a PFIC for any taxable year as the conclusion is a factual determination
  made annually and thus may be subject to change based on future income and the
  future composition and valuation of our assets.

If
  we were to constitute a PFIC in any taxable year, a U.S. Holder would be subject
  to special rules generally intended to reduce or eliminate any benefits from
  the deferral of United States federal income tax that a U.S. Holder could derive
  from investing in a foreign company that does not distribute all of its earnings
  on a current basis.  In such event, a U.S. Holder may be subject to tax
  at ordinary income rates on (i) any gain recognized on the sale of our shares
  or ADSs and (ii) any excess distribution paid on our shares
  or ADSs (generally, a distribution in excess of 125% of the average annual distributions
  paid by us in the three preceding taxable years).  In addition, you may
  be subject to an interest charge on such gain or excess distribution.  Prospective
  U.S. Holders should consult with their own tax advisors regarding the potential
  application of PFIC rules as well as certain elections that may be available
  to a U.S. Holder to mitigate such consequences.





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United
  States backup withholding tax and information reporting

Payments
  made by a paying agent within the United States to U.S. Holders other than corporations
  and other exempt recipients in respect of shares or ADSs may be subject to information
  reporting to the United States Internal Revenue Service, or IRS. Such payments
  are also subject to backup withholding tax if made to a non-exempt U.S. Holder
  that fails to provide certain information to the paying agent, including the
  holders taxpayer identification number, and to comply with certain other
  requirements concerning backup withholding. Any amounts withheld under the backup
  withholding rules from a payment to a holder of shares or ADSs generally will
  be allowed as a refund or a credit against such holders U.S. federal income
  tax, provided that the required information is furnished to the IRS.  The
  current rate of backup withholding tax is 28%.

F.

Dividends
  and Paying Agents

Not
  Applicable.

G.

Statements
  by Experts

Not
  Applicable.

H.

Documents
  on Display

We
  are subject to the information requirements of the U.S. Securities Exchange
  Act of 1934, as amended, as they apply to foreign private issuers and, in accordance
  therewith, we are required to file and submit reports, including Annual Reports
  on Form 20-F, and other information with the SEC. Any filings and submissions
  that we are required to make electronically, including this Annual Report and
  the exhibits hereto, are available to the public over the Internet at the SECs
  Web site at http://www.sec.gov. All public materials filed or submitted
  with the SEC, including this Annual Report and the exhibits hereto, may also
  be inspected and copied at the SECs public reference rooms in Washington,
  D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
  for further information on the public reference rooms.

I.

Subsidiary
  Information

Not
  Applicable.

Item
  11.

Quantitative
  and Qualitative Disclosures About Market Risk

Currencies

We
  operate on a multinational basis and a significant portion of our business is
  conducted in currencies other than the U.S. dollar, which is our financial reporting
  currency for the Consolidated Financial Statements included herein. A significant
  portion of our revenues and expenses are denominated in euros, and the remainder
  in U.S. dollars and other currencies. Approximately 34% of our sales and 54%
  of our operating expenses in fiscal year 2005 were denominated in euros, with
  the remainder in U.S. dollars and, to a lesser extent, other currencies. For
  the year ended June 30, 2005, the effect of a 10% hypothetical uniform strengthening
  in the value of the euro relative to the U.S. dollar would result in an increase
  in revenues of $4.3 million and operating expenses of $6.4 million with a decrease
  in operating income of approximately $2.1 million and decrease in earnings per
  share of $0.11.

Fluctuations
  in the value of the currencies in which we conduct our business relative to
  the U.S. dollar have caused and will continue to cause dollar-translated amounts
  to vary from one period to another. Also, currency exchange rate movements of
  foreign denominated currency receivables and payables recorded by the Company
  and each of its subsidiaries, including their respective intercompany accounts,
  result in the reporting of realized and unrealized exchange gains or losses
  in our income statement. In order to mitigate the impact of exchange rate fluctuations,
  we enter into foreign exchange derivative financial instruments to protect against
  foreign currency rate improvements relative to the euro for anticipated cash
  flows from transactions between the Company and its subsidiaries. Due to the
  number of currencies



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involved,
  the constantly changing currency exposures and the volatility of currency exchange
  rates, we cannot predict the effect of exchange rate fluctuations on future
  operating results.

Interest
  rates

We
  believe we do not have any significant risk with regard to interest rate fluctuation
  and accordingly we do not hedge for interest rate exposure.

Item
  12.

Description
  of Securities Other Than Equity Securities

Not
  Applicable.



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PART
  II

Item
  13.

Defaults,
  Dividend Arrearages and Delinquencies

None.

Item
  14.

Material
  Modification to the Rights of Security Holders and Use of Proceeds

None.

Item
  15.

Controls
  and Procedures

As
  of June 30, 2005, the end of the period covered by this Annual Report on Form
  20-F, the Company, under the supervision and with the participation of the Companys
  management, including the Companys Chairman and Chief Executive Officer,
  Pierre Haren, and Chief Financial Officer, Jérôme Arnaud, performed
  an evaluation of the effectiveness of our disclosure controls and procedures
  (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
  of 1934, as amended (the Exchange Act)).  Based on this evaluation,
  the Companys Chairman and Chief Executive Officer and Chief Financial
  Officer have concluded that as of the end of the period covered by this Annual
  Report on Form 20-F, our disclosure controls and procedures were effective to
  ensure that information required to be disclosed by the Company in the reports
  it files or submits under the Exchange Act is recorded, processed, summarized
  and reported within the time periods specified in the SECs rules and forms.
  The Companys management recognizes that any set of controls and procedures,
  no matter how well designed and operated, can provide only reasonable assurance
  of achieving managements control objectives. The Companys management,
  including its Chairman and Chief Executive Officer and Chief Financial Officer,
  believe that, as of June 30, 2005, the Companys disclosure controls and
  procedures were effective to provide reasonable assurance of achieving managements
  control objectives.

Except
  as described below, there were no significant changes in our internal control
  over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
  Exchange Act) that occurred during the fiscal year ended June 30, 2005 that
  have materially affected, or that are reasonably likely to materially affect,
  our internal control over financial reporting.

ILOG
  is aware of the importance of maintaining controls and procedures and is working
  towards improving its controls and procedures.  One of the objectives of
  any internal control procedures control system is to prevent and control risks
  arising from the Companys business operations and the risks of error or
  fraud, in particular in areas of accounting and finance. As with every control
  system, the internal control procedures cannot provide an absolute guarantee
  that these risks are totally eliminated.

Beginning
  with the fiscal year ending June 30, 2007, Section 404 of the U.S. Sarbanes-Oxley
  Act of 2002, or Section 404, will require us to include an internal control
  report of management with our Annual Report on Form 20-F. The internal control
  report must contain:

·

a
  statement of managements responsibility for establishing and maintaining
  adequate internal control over financial reporting,

·

a
  statement identifying the framework used by management to conduct the required
  evaluation of the effectiveness of our internal control over financial reporting,

·

managements
  assessment of the effectiveness of our internal control over financial reporting
  as of the end of our most recent fiscal year, including a statement as to whether
  or not our internal control over financial reporting is effective, and

·

a
  statement that our independent auditors have issued an attestation report on
  managements assessment of our internal control over financial reporting.

In
  addition, pursuant to article L.225-37 of the French Commercial Code, the Chairman
  of our Board of Directors is required to deliver a special report in connection
  with the annual shareholders meeting regarding the Boards governance



Form
  20-F 2005  ILOG | 71



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practices
  and the status of the ILOGs internal control procedures. This report is
  required to describe, among other things, the organization of our internal control,
  the employees responsible for internal control, the underlying documents set
  forth (code of business conduct and ethics or others) and the internal control
  procedures that we currently have in place, including internal controls designed
  for purposes of preparing ILOGs financial information and Consolidated
  Financial Statements. This report must also include a Chairmans opinion
  regarding the efficiency of the ILOGs internal procedures, along with
  the independent registered public accounting firm (Commissaires aux Comptes)s
  warning in case of deficiency of the internal control.

In
  the course of preparing the financial statements for ILOGs fiscal 2005
  second quarter, ILOG identified invoices totaling $529,000 owed to unaffiliated
  third party consulting service providers that should have been, but were not,
  accrued as Cost of RevenuesServices in the fiscal 2005 first
  quarter ended September 30, 2004.  As a result, ILOG restated its originally
  published fiscal 2005 first quarter financial statements.  The restatement
  reduced the originally reported fiscal 2005 first quarter net income by $529,000
  and the earnings per share by $0.03.  While revenues for the fiscal 2005
  first quarter were unaffected by the error, the fiscal 2005 first quarter net
  income was reduced from $2.5 million to $2.0 million and the fiscal 2005
  first quarter earnings per share was reduced from $0.14 to $0.11.  The
  restatement did not affect any of ILOGs annual financial statements filed
  with the SEC.

ILOG
  believes this error arose due to the increase in consulting services revenues
  in recent quarters and a delay in implementing adequate accounting processes
  to track the associated increase in third party support for these services.
   ILOG believes that it has taken appropriate action to correct its internal
  controls regarding the timely identification and accrual of third party service
  provider payables.  More generally, ILOG is also documenting the financial
  statements closing process to add additional procedures and controls regarding
  the accounting for the consulting activities that has grown significantly in
  the last quarters. This ongoing work is expected to help ILOG improve the reliability
  of its financial information. In the course of our ongoing Section 404 evaluation,
  we have identified areas of internal control that may need improvement, and
  plan to design enhanced processes and controls to address these and any other
  issues that might be identified through this review.

We
  cannot be certain as to the timing of completion of our evaluation, testing
  and any remediation actions or the impact of the same on our operations. If
  we are not able to implement the requirements of Section 404 in a timely manner
  or with adequate compliance or our independent auditors are not able to certify
  the effectiveness of our internal control over financial reporting, we may be
  subject to sanctions or investigation by regulatory authorities, such as the
  SEC. As a result, there could be a negative reaction in the financial markets
  due to a loss of confidence in the reliability of our financial statements.
  In addition, we may be required to incur costs in improving our internal control
  system and the hiring of additional personnel. Any such action could negatively
  affect our results.

Item
  16.

Audit
  Committee and other Financial related Information

A.

Audit
  Committee financial expert

Our
  Board of Directors has determined that Mr. Thomas Weatherford is an Audit Committee
  financial expert within the meaning of Item 16A. (b) and (c) of the requirements
  of Form 20-F of the SEC. The SEC has determined that the Audit Committee financial
  expert designation does not impose on the person with that designation, any
  duties, obligations or liability that are greater than the duties, obligations
  or liabilities imposed on such person as a member of the Audit Committee of
  the Board of Directors in the absence of such designation. His curriculum is
  presented under Item 6 here above. Mr. Weatherford is an independent
  Director within the meaning of Rule 10A-3(b)(1) of the Securities Exchange Act
  of 1934, as amended.



72
  | Form 20-F 2005  ILOG



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B.

Code
  of Ethics

The
  Company has adopted on January 20, 2003, a general Code of Business Conduct
  and Ethics, and on April 1, 2005, a Supplementary Code of Ethics
  and Business Conduct for Executives, that applies to its Chief Executive
  Officer, its Chief Financial Officer and its Corporate Controller or persons
  performing similar functions (the Designated Executives) and are
  designed to comply with the requirements of Item 16B. of Form 20-F. If we amend
  the provisions of our Supplementary Code of Ethics, or if we grant any waiver
  of such provisions, we will disclose such amendment or waiver.

The
  Code of Business Conduct and Ethics and the Supplementary
  Code of Ethics and Business Conduct for Designated Executives are available
  on our internet website (www.ilog.com). We further undertake to provide
  to any person, upon request and without charge, a copy of these Codes of Ethics.
  Please address your request to Kim Funk, VP and General Counsel, 1080 Linda
  Vista Avenue, Mountain View, California 94043.

Any
  breach of the provisions of the Code of Business Conduct and Ethics or of the
  Supplement Code of Business Conduct for Designated Executives which is considered
  to be potentially material will be submitted to the Board for review and decision.
  The Board will determine if the alleged breach of the Code of Business Conduct
  and Ethics or the Supplementary Code of Business Conduct for Designated Executives
  is material and may waive such breach or take whatever disciplinary action it
  considers appropriate in the circumstances, including immediate dismissal of
  the concerned Executive. No such matters have been referred to the Board during
  this fiscal reporting period.

C.

Principal
  Accountant Fees and Services

Fees
  paid by ILOG to its U.S. independent registered public accounting firm and the
  members of its network in fiscal year 2005 and fiscal year 2004 were as follows:

|(in
        thousands of euros)        |  | Ernst
        & Young Audit |  | Audit
        & Diagnostic (5)
|-------------------------------------- |  | --------------------------- |  | ------------------------------
|                                       |  | fiscal
        year  2005   |  | fiscal
        year  2004     
|·
      Audit
        fees (1)         |  | €477                        |  | €442                          
|·
      Audit-related
        fees (2) |  | 36                          |  | 18                            
|·
      Tax
        fees (3)           |  | 17                          |  | 143                           
|·
      All
        other services (4) |  | —                           |  | —                             
|                                       |  | €530                        |  | €603                          

__________

(1)

Audit
  fees paid to Ernst &Young Audit include the audit of our Consolidated Financial
  Statements in accordance with U.S. GAAP, our statutory audit and of certain
  of our subsidiaries, the review of our quarterly and semi-annual financial statements,
  SEC registration statements and other filings, and certain certifications required
  for French regulatory purposes.

(2)

Audit
  related fees include assessment of design and implementation of internal
  accounting controls and due diligence pertaining to business combinations.

(3)

Tax
  fees include a detailed review of the Companys transfer pricing policy
  and its compliance with tax rules, as well as tax compliance in Singapore and
  in the UK.

(4)

Not
  applicable.

(5)

Audit
  & Diagnostic are co-statutory auditors required by French law.

All
  fees paid to Ernst & Young Audit in the fiscal years 2004 and 2005 were
  pre-approved by the Audit Committee.  The Companys Audit Committee
  is required to review and approve in advance the retention of the independent
  auditors for the performance of all audit and non-audit services that are not
  prohibited and the fees for such services. Pre-approval of audit and non-audit
  services that are not prohibited may be pursuant to appropriate policies and
  procedures established by the committee for the pre-approval of such services,
  including through delegation of authority to a member of the committee. Any
  service that is approved pursuant to a delegation of authority to a member of
  the committee must be reported to the full committee at its next scheduled meeting.

D.

Exemptions
  from the Listing Standards for Audit Committees

None.



Form
  20-F 2005  ILOG | 73



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E.

Purchases
  of Equity Securities by the Issuer and Affiliated Purchasers

In
  fiscal year 2005, ILOG embarked on a share repurchase program.  The following
  table sets forth information with respect to ILOGs share repurchases in
  the 2005 fiscal year.

|                                 |  | (a)
        Total 
        number of 
        shares 
        purchased |  | (b)
        Average 
        price paid 
        per share 
        (in  euros) |  | (c)
        Total 
        number of 
        shares 
        purchased 
        as part of 
        publicly 
        announced 
        plans  or 
        programs |  | (d)
        Maximum 
        number  of 
        shares 
        that  may 
        yet be 
        purchased 
        under  the 
        plans or 
        programs(1) (2)
|-------------------------------- |  | ----------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|July
        2004                |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|August
        2004              |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|September
        2004           |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|October
        2004             |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|November
        2004            |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|December
        2004            |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|January
        2005             |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|February
        2005            |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|March
        2005               |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|April
        2005               |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,800,541                                                                                                                                                                   
|May
        2005                 |  | 59,185                                                                  |  | 9.90                                                                            |  | 59,185                                                                                                                                                                |  | 1,741,356                                                                                                                                                                   
|June
        2005                |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,741,356                                                                                                                                                                   
|July
        2005                |  |                                                                        |  |                                                                                |  |                                                                                                                                                                      |  | 1,741,356                                                                                                                                                                   
|August
        2005              |  | 200,716                                                                 |  | 12.39                                                                           |  | 200,716                                                                                                                                                               |  | 1,540,640                                                                                                                                                                   
|Total
        at August 30, 2005 |  | 259,901                                                                 |  | 11.82                                                                           |  | 259,901                                                                                                                                                               |  | 1,540,640                                                                                                                                                                   

_______________________

(1)

On
  November 30, 2004, the shareholders of ILOG authorized the Board of Directors
  to repurchase up to 10% of ILOG’s total outstanding share capital at a
  maximum purchase price of €13 and a minimum sale price of €3.  The
  total amount of such repurchases may not exceed 15 million euros.  This
  authorization will expire on the date of the Ordinary Shareholders Meeting
  called to approve the accounts for the fiscal year ending on June 30, 2005,
  which is currently scheduled for November 29, 2005.  At that meeting, the
  shareholders will be asked to authorize the Board of Directors to adopt a new
  share repurchase plan allowing for a maximum purchase price of €20 and
  a minimum sale price of €5, with no change in the purchase cap. The repurchases
  are subject to the provisions of French law.  See “Item 10.  Additional
  Information—B.9.  Purchase of the Company’s Own Shares.

(2)

The
  maximum number of shares is based on the total of 18,005,407 outstanding shares
  as of June 30, 2005.





74
  | Form 20-F 2005  ILOG



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PART
  III

Item
  17.

Financial
  Statements

Not
  Applicable.

Item
  18.

Financial
  Statements

The
  following financial statements and schedules, together with the report of Ernst
  & Young Audit thereon, are filed as part of this Annual Report:

|                                                                | Page
|--------------------------------------------------------------- | ----
|Report
        of Independent Registered Public Accounting Firm | F-1 
|Consolidated
        Balance Sheets                             | F-2 
|Consolidated
        Income Statements                          | F-3 
|Consolidated
        Statements of Cash Flows                   | F-4 
|Consolidated
        Statements of Shareholders Equity         | F-5 
|Notes
        to Consolidated Financial Statements              | F-6 
|Schedule
        II Valuation and Qualifying Accounts           | F-25

(Financial
  statement schedules I, III, IV and V are omitted as the information is not required,
  is not applicable or the information is presented in the financial statements
  or related notes thereto.)

Item
  19.

Exhibits

The
  following exhibits are filed as part of this Annual Report:

|1    | Statuts
        (by-laws), of ILOG S.A., as amended (unofficial English translation)                                                                                                                          
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                               
|2.1  | Form
        of Deposit Agreement, dated as of February 13, 1997 and amended August
        1998, between the Company, the Depositary and the holders of American
        Deposit Shares                      
|     |                                                                                                                                                                                                               
|8    | Subsidiaries
        of the Registrant                                                                                                                                                                        
|     |                                                                                                                                                                                                               
|12.1 | Certification
        of the Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
        of the Exchange Act                                                                                     
|     |                                                                                                                                                                                                               
|12.2 | Certification
        of the Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
        of the Exchange Act                                                                                     
|     |                                                                                                                                                                                                               
|13.1 | Certification
        of the Chief Executive Officer and Chief Financial Officer pursuant to
        Rules 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18
        of the United States Code
|     |                                                                                                                                                                                                               
|15   | Consent
        of Ernst & Young Audit relating to the incorporation by reference
        of the audit report                                                                                                 





Form
  20-F 2005  ILOG | 75



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ILOG
  S.A.

REPORT
  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
  Board of Directors and Shareholders

ILOG
  S.A.

We
  have audited the accompanying consolidated balance sheets of Ilog S.A. as of
  June 30, 2005 and 2004, and the related consolidated statements of operations,
  stockholders equity, and cash flows for each of the three years in the
  period ended June 30, 2005. Our audits also included the financial statement
  schedule listed in the Index at Item 18. These financial statements and schedule
  are the responsibility of the Companys management.  Our responsibility
  is to express an opinion on these financial statements and schedule based on
  our audits.

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

In
  our opinion, the financial statements referred to above present fairly, in all
  material respects, the consolidated financial position of Ilog S.A. as of June
  30, 2005 and 2004, and the consolidated results of its operations and its cash
  flows for each of the three years in the period ended June 30, 2005, in conformity
  with U.S. generally accepted accounting principles. Also, in our opinion, the
  related financial statement schedule, when considered in relation to the basic
  financial statements taken as a whole, presents fairly in all material respect
  the information set forth therein.

Paris-La
  Défense, France

September
  28, 2005

| | ERNST
        & YOUNG Audit        
| | -----------------------------------
| | /s/
        DENIS THIBON           
| | Represented
        by Denis Thibon





Form
  20-F 2005  ILOG | F-1



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ILOG
  S.A.

CONSOLIDATED
  BALANCE SHEETS

(in
  thousands of U.S. dollars, except for share data)

|                                                                                                                                                              |  | June
        30,
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|                                                                                                                                                              |  | 2005            
|ASSETS                                                                                                                                                        |  |                 
|Current
        assets:                                                                                                                                       |  |                 
|Cash
        and cash equivalents                                                                                                                             |  | $61,730         
|Short
        term investments                                                                                                                                |  |                
|Total
        cash, cash equivalents and short term investments                                                                                               |  | 61,730          
|Accounts
        receivable (less allowance for doubtful accounts of $683 and $584 at June
        30, 2005 and 2004, respectively)                           |  | 28,899          
|Value-added
        tax collectible on accounts receivable                                                                                                    |  | 1,659           
|Other
        receivables                                                                                                                                     |  | 3,512           
|Prepaid
        expenses                                                                                                                                      |  | 2,192           
|Total
        current assets                                                                                                                                  |  | 97,992          
|Property
        and equipment-net                                                                                                                            |  | 4,506           
|Intangible
        assets-net and Goodwill                                                                                                                    |  | 2,079           
|Other
        assets                                                                                                                                          |  | 1,234           
|Total
        assets                                                                                                                                          |  | $105,811        
|                                                                                                                                                              |  |                 
|LIABILITIES
        AND SHAREHOLDERS' EQUITY                                                                                                                  |  |                 
|Current
        liabilities:                                                                                                                                  |  |                 
|Accounts
        payable and accrued expenses                                                                                                                 |  | $6,628          
|Accrued
        compensation                                                                                                                                  |  | 15,425          
|Value-added
        tax payable                                                                                                                               |  | 1,786           
|Current
        portion of capitalized lease obligations                                                                                                      |  | 429             
|Deferred
        revenue                                                                                                                                      |  | 22,782          
|Total
        current liabilities                                                                                                                             |  | 47,050          
|Long-term
        portion of capitalized lease obligations                                                                                                    |  | 361             
|Total
        liabilities                                                                                                                                     |  | 47,411          
|                                                                                                                                                              |  |                 
|Commitments
        and contingencies                                                                                                                         |  | —               
|                                                                                                                                                              |  |                 
|Shareholders'
        equity:                                                                                                                                 |  |                 
|Shares,
        €1 and €0.61 nominal value per share, 18,005,407 and 17,625,699
        shares issued and outstanding at June 30, 2005 and 2004, respectively |  | 21,470          
|Additional
        paid-in capital                                                                                                                            |  | 63,986          
|Treasury
        stock at cost                                                                                                                                |  | (713)           
|Accumulated
        deficit                                                                                                                                   |  | (30,052)        
|Accumulated
        other comprehensive income                                                                                                                |  | 3,709           
|Total
        shareholders' equity                                                                                                                            |  | 58,400          
|Total
        liabilities and shareholders' equity                                                                                                            |  | $105,811        









See
  notes to Consolidated Financial Statements



Form
  20-F 2005  ILOG | F-2



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ILOG
  S.A.

CONSOLIDATED
  INCOME STATEMENTS

(in
  thousands of U.S. dollars, except for share and per share data)

|                                                                |  | Year
        Ended June 30, |  
|--------------------------------------------------------------- |  | --------------------------- | -
|                                                                |  | 2005                        |  
|Revenues:                                                       |  |                             |  
|License
        fees..                                          |  | $67,707                     |  
|Maintenance                                                     |  | 34,158                      |  
|Professional
        Services                                   |  | 23,438                      |  
|Total
        revenues                                          |  | 125,303                     |  
|                                                                |  |                             |  
|Cost
        of revenues:                                       |  |                             |  
|License
        fees                                            |  | 1,031                       |  
|Maintenance                                                     |  | 3,870                       |  
|Professional
        Services                                   |  | 19,782                      |  
|Total
        cost of revenues                                  |  | 24,683                      |  
|                                                                |  |                             |  
|Gross
        profit                                            |  | 100,620                     |  
|                                                                |  |                             |  
|Operating
        expenses:                                     |  |                             |  
|Marketing
        and selling                                   |  | 53,364                      |  
|Research
        and development                                |  | 27,224                      |  
|General
        and administrative                              |  | 13,561                      |  
|Total
        operating expenses                                |  | 94,149                      |  
|                                                                |  |                             |  
|Income
        from operations                                  |  | 6,471                       |  
|Interest
        expense                                        |  | (44                         | )
|Interest
        income                                         |  | 1,007                       |  
|Other,
        net                                              |  | (57                         | )
|Net
        Income before income taxes                          |  | 7,377                       |  
|Income
        taxes                                            |  | (650                        | )
|Net
        Income                                              |  | $6,727                      |  
|                                                                |  |                             |  
|Net
        Income per share                                    |  |                             |  
|-
        basic                                                 |  | $0.38                       |  
|-
        diluted                                               |  | $0.36                       |  
|                                                                |  |                             |  
|Number
        of shares used in computing net income per share |  |                             |  
|-
        basic                                                 |  | 17,815,291                  |  
|-
        diluted                                               |  | 18,721,971                  |  











See
  notes to Consolidated Financial Statements



Form
  20-F 2005  ILOG | F-3



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ILOG
  S.A.

CONSOLIDATED
  STATEMENTS OF CASH FLOWS

(in
  thousands of U.S. dollar)

|                                                                                          |  | Year
        Ended June 30, |  
|----------------------------------------------------------------------------------------- |  | --------------------------- | -
|                                                                                          |  | 2005                        |  
|Cash
        flows from operating activities:                                             |  |                             |  
|Net
        income                                                                        |  | $6,727                      |  
|Adjustments
        to reconcile net income to net cash provided by operating activities: |  |                             |  
|Depreciation
        and amortization                                                     |  | 2,926                       |  
|Unrealized
        loss (gain) on derivative instruments                                  |  | 125                         |  
|Gain
        on short-term investments                                                    |  | (173                        | )
|Non
        cash compensation                                                             |  |                            |  
|Loss
        on sales or impairment of assets                                             |  | 186                         |  
|Increase
        (decrease) in cash from:                                                 |  |                             |  
|Accounts
        receivable                                                               |  | (5,709                      | )
|Value-added
        tax collectible on accounts receivable                                |  | (542                        | )
|Other
        receivables                                                                 |  | (369                        | )
|Prepaid
        expenses                                                                  |  | (118                        | )
|Accounts
        payable and accrued expenses                                             |  | 618                         |  
|Accrued
        compensation                                                              |  | 3,973                       |  
|Deferred
        revenue                                                                  |  | 5,246                       |  
|Value-added
        tax payable                                                           |  | 423                         |  
|Other                                                                                     |  | (167                        | )
|Net
        cash provided by operating activities                                         |  | 13,146                      |  
|Cash
        flows from investing activities:                                             |  |                             |  
|Sale
        (Purchase) of short term investments, net                                    |  | 22,314                      |  
|Purchases
        of property and equipment                                               |  | (2,465                      | )
|Buiness
        acquisition                                                               |  | (1,793                      | )
|Purchase
        of equity method investment                                              |  | (500                        | )
|Net
        acquisition of intangible and other assets                                    |  | (168                        | )
|Net
        cash provided by (used for) investing activities                              |  | 17,388                      |  
|Cash
        flows from financing activities:                                             |  |                             |  
|Principal
        payments on capital lease obligations                                   |  | (602                        | )
|Cash
        proceeds from issuance of shares                                             |  | 3,317                       |  
|Purchase
        of treasury stock                                                        |  | (713                        | )
|Net
        cash provided by financing activities                                         |  | 2,002                       |  
|Effect
        of exchange rate changes on cash  and cash equivalents                     |  | (885                        | )
|Net
        increase (decrease) in cash and cash equivalents                              |  | 31,651                      |  
|Cash
        and cash equivalents, beginning of  period                                   |  | 30,079                      |  
|Cash
        and cash equivalents, end of  period                                         |  | $61,730                     |  
|                                                                                          |  |                             |  
|Supplemental
        disclosure                                                           |  |                             |  
|Cash
        paid for income taxes                                                        |  | $691                        |  
|Cash
        paid for interest                                                            |  | $44                         |  





See
  notes to Consolidated Financial Statements



Form
  20-F 2005  ILOG | F-4



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  To Contents





ILOG
  S.A.

CONSOLIDATED
  STATEMENTS OF SHAREHOLDERS EQUITY

(in
  thousands of U.S dollars, except for number of share data)

|                                                      |  |            |  |         |  | Additional
        Paid-in
        Capital |   | Treasury
      Stock |   | Accumulated
        Benefit (Deficit) |   | Accumulated
      Other
        Comprehensive
        Income
        (Loss) |   | Share-
        holders'
      Equity |  
|----------------------------------------------------- |  | ---------- |  | ------- |  | ------------------------------------------ | - | -------------------- | - | ------------------------------------- | - | --------------------------------------------------------------------------- | - | ------------------------------------ | -
|                                                      |  |            |  |         |  |                                            |   |                      |   |                                      
|                                                      |  |            |  |         |  |                                            |   |                      |   |                                      
|                                                      |  | Shares     |  |         |  |                                            |   |                     
|                                                      |  | Number     |  | Amount  |  |                                            |   |                      |   |                                      
|                                                      |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   |                                      |  
|Balance
        June 30, 2002                         |  | 16,670,665 |  | $11,390 |  | $65,960                                    |   |                      |   | $(39,816                              | ) | $(1,584                                                                     | ) | $35,950                              |  
|Options
        exercised                             |  | 15,228     |  | 10      |  | 83                                         |   |                      |   |                                       |   |                                                                             |   | 93                                   |  
|Issuance
        of shares                            |  | 215,677    |  | 136     |  | 740                                        |   |                      |   |                                       |   |                                                                             |   | 876                                  |  
|Issuance
        of warrants                          |  |            |  |         |  | 66                                         |   |                      |   |                                       |   |                                                                             |   | 66                                   |  
|Components
        of comprehensive 
        income : |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   | 0                                    |  
|Minimum
        pension liability adjustment          |  |            |  |         |  |                                            |   |                      |   |                                       |   | (90                                                                         | ) | (90                                  | )
|Unrealized
        gains on cash flow hedges          |  |            |  |         |  |                                            |   |                      |   |                                       |   | 149                                                                         |   | 149                                  |  
|Translation
        adjustment                        |  |            |  |         |  |                                            |   |                      |   |                                       |   | 3,876                                                                       |   | 3,876                                |  
|Net
        income                                    |  |            |  |         |  |                                            |   |                      |   | 1,372                                 |   |                                                                             |   | 1,372                                |  
|Total
        comprehensive income                    |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   | 5,307                                |  
|Balance
        June 30, 2003                         |  | 16,901,570 |  | 11,536  |  | 66,849                                     |   |                      |   | (38,444                               | ) | 2,351                                                                       |   | 42,292                               |  
|Options
        exercised                             |  | 74,111     |  | 55      |  | 537                                        |   |                      |   |                                       |   |                                                                             |   | 592                                  |  
|Issuance
        of shares                            |  | 638,018    |  | 448     |  | 2,537                                      |   |                      |   |                                       |   |                                                                             |   | 2,985                                |  
|Warrants
        exercised                            |  | 12,000     |  | 9       |  | 99                                         |   |                      |   |                                       |   |                                                                             |   | 108                                  |  
|Issuance
        of warrants                          |  |            |  |         |  | 69                                         |   |                      |   |                                       |   |                                                                             |   | 69                                   |  
|Components
        of comprehensive 
        income : |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   |                                      |  
|Minimum
        pension liability adjustment          |  |            |  |         |  |                                            |   |                      |   |                                       |   | (194                                                                        | ) | (194                                 | )
|Unrealized
        gains on cash flow hedges          |  |            |  |         |  |                                            |   |                      |   |                                       |   | 13                                                                          |   | 13                                   |  
|Translation
        adjustment                        |  |            |  |         |  |                                            |   |                      |   |                                       |   | 2,208                                                                       |   | 2,208                                |  
|Net
        income                                    |  |            |  |         |  |                                            |   |                      |   | 1,665                                 |   |                                                                             |   | 1,665                                |  
|Total
        comprehensive income                    |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   | 3,692                                |  
|Balance
        June 30, 2004                         |  | 17,625,699 |  | 12,048  |  | 70,091                                     |   |                      |   | (36,779                               | ) | 4,378                                                                       |   | 49,738                               |  
|Options
        exercised                             |  | 235,065    |  | 284     |  | 1,670                                      |   |                      |   |                                       |   |                                                                             |   | 1,954                                |  
|Issuance
        of shares                            |  | 140,643    |  | 138     |  | 1,187                                      |   |                      |   |                                       |   |                                                                             |   | 1,325                                |  
|Warrants
        exercised                            |  | 4,000      |  | 3       |  | 35                                         |   |                      |   |                                       |   |                                                                             |   | 38                                   |  
|Increase
        of share nominal value               |  |            |  | 8,997   |  | (8,997                                     | ) |                      |   |                                       |   |                                                                             |   | 0                                    |  
|Treasury
        stock                                |  |            |  |         |  |                                            |   | (713                 | ) |                                       |   |                                                                             |   | (713                                 | )
|Components
        of other comprehensive income :    |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   |                                      |  
|Minimum
        pension liability adjustment          |  |            |  |         |  |                                            |   |                      |   |                                       |   | 284                                                                         |   | 284                                  |  
|Unrealized
        losses on cash flow hedges         |  |            |  |         |  |                                            |   |                      |   |                                       |   | (319                                                                        | ) | (319                                 | )
|Translation
        adjustment                        |  |            |  |         |  |                                            |   |                      |   |                                       |   | (634                                                                        | ) | (634                                 | )
|Net
        income                                    |  |            |  |         |  |                                            |   |                      |   | 6,727                                 |   |                                                                             |   | 6,727                                |  
|Total
        comprehensive incomes                   |  |            |  |         |  |                                            |   |                      |   |                                       |   |                                                                             |   | 6,058                                |  
|Balance
        June 30, 2005                         |  | 18,005,407 |  | $21,470 |  | $63,986                                    |   | $
        (713)      |   | $ (30,052)                            |   | $3,709                                                                      |   | $58,400                              |  





See
  notes to Consolidated Financial Statements



Form
  20-F 2005  ILOG | F-5



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  To Contents







ILOG
  S.A.

NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS

(in
  thousands of U.S dollars, except for share and per share data)

1.

Nature
  of Business and Summary of Significant Accounting Policies

Nature
  of Business

ILOG
  S.A. and its subsidiaries (the Company) develop, market and support
  software for business rule management, resource optimization and visual interfaces
  that are fundamental to the development of strategic business applications by
  creating pre-built and pre-tested software components to address these software
  functions. The Companys products are distributed through its direct sales
  force, system integrators, value added resellers, independent software vendors
  and original equipment manufacturers.

ILOG
  S.A. is organized as a société anonyme, a form of corporation,
  under the laws of the Republic of France, and was founded in 1987.

Basis
  of Presentation and Principles of Consolidation

The
  accompanying Consolidated Financial Statements were prepared in accordance with
  accounting principles generally accepted in the United States, which were applied
  on a consistent basis. The preparation of financial statements in conformity
  with U.S. generally accepted accounting principles requires management to make
  estimates and assumptions that affect the amounts reported in the financial
  statements and accompanying footnotes. Actual results could differ from those
  estimates.

The
  accompanying Consolidated Financial Statements include ILOG S.A. and its subsidiaries
  which are located in the United States, Germany, Japan, Singapore, Spain and
  the United Kingdom after eliminating intercompany accounts and transactions.

Investments
  in which the Company is not able to exercise significant influence over the
  investee are accounted for under the cost method. Investments in which the Company
  is able to exercise significant influence over the investee are accounted for
  under the equity method.

Reclassification

Certain
  reclassifications have been made to prior year amounts to conform with current
  year presentation.

The
  Company has historically accounted for certain investments, known as monetary
  Société dInvestissement à Capital Variable (SICAVs)
  and Fonds Commun de Placement (FCP), as cash and cash equivalents.
  Monetary SICAVs and FCP are highly liquid investments with financial institutions
  and represent units of ownership in a portfolio of investments. The underlying
  investments of monetary SICAVs and FCP are comprised of low risk investments
  with a short-term fixed maturity date such as government bonds, certificates
  of deposit and Euro Commercial paper. Our investments in SICAVs and FCP are
  equity securities and therefore do not have specific maturity dates even though
  there is a high degree of liquidity. Consequently, the SICAVs and FCP we held
  at June 30, 2004, which were previously recorded in cash and cash equivalents,
  have been reclassified in short-term investments in the accompanying Consolidated
  Financial Statements. The 2004 adjusted balance sheet now reflects cash and
  cash equivalents totaling $ 30,079 (previously reported as $ 52,220) as well
  as short term investments totaling $22,141.



Form
  20-F 2005  ILOG | F-6



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This
  reclassification also resulted in changes in the Company's consolidated statements
  of cash flows for the years ended June 30, 2004. The purchase and sale of SICAVs
  and FCP previously presented as cash and cash equivalents have been reclassified
  to investing activities. There was no impact on net income or stockholders'
  equity as a result of this reclassification.

The
  Company did not hold any SICAVs or FCP at June 30, 2003 and 2005.

Foreign
  Currency Translation

The
  functional currency of ILOG S.A. and its subsidiaries is the applicable local
  currency in accordance with Statement of Financial Accounting Standards No.
  52, Foreign Currency Translation, while the Companys reporting
  currency is the U.S. dollar.

All
  assets and liabilities of the Company and its subsidiaries with functional currencies
  other than the U.S. dollar are translated into U.S. dollar equivalents at exchange
  rates as follows: (1) asset and liability accounts at the exchange rate in effect
  on the balance sheet date, (2) revenues and expenses at the respective monthly
  average exchange rates, and (3) shareholders equity accounts at historical
  exchange rates. Translation gains or losses are recorded as a separate component
  of shareholders equity, and transaction gains and losses are reflected
  in net income.

Revenue
  Recognition

The
  Companys revenue is derived from three primary sources: software license
  fees, maintenance and professional service fees, including consulting and training
  services.

The
  Company recognizes revenue from product licensing fees, whether sold directly
  or through distributors, when the product is delivered, the fee is fixed or
  determinable, evidence of an arrangement has been received, all significant
  contractual obligations have been satisfied and the resulting receivable is
  deemed collectible by management, in accordance with Statement of Position 97-2,
  Software Revenue Recognition (SOP 97-2,) as amended
  by Statement of Position 98-4, Deferral of the Effective Date of a Provision
  of SOP 97-2 and Statement of Position 98-9, Modification of SOP
  97-2, Software Revenue Recognition, with Respect to Certain Transactions.
  If any of these criteria are not met, recognition of revenues is deferred until
  such time as all of the criteria are met.

Our
  software arrangements often include consulting and training services. Consulting
  revenues from these arrangements are generally accounted for separately from
  software license revenues as the services (1) are not essential to the functionality
  of the software license, (2) are available from other vendors, and (3) do not
  include significant modification or customization of the software. Revenues
  from time and material consulting services are recognized as the services are
  performed. Revenues from fixed price consulting services are recognized on a
  proportional performance basis.

When
  consulting services are considered essential to a software deliverable or the
  arrangement involves significant customization or modification of software,
  both the license and consulting service revenue under the arrangement are recognized
  under the percentage of completion method of contract accounting. Training revenue
  is recognized at the time service is performed.

Revenue
  from software maintenance agreements is recognized ratably over the arrangement
  period, which in most instances is for one year. Accordingly, deferred revenues
  consist principally of deferrals for invoiced maintenance services, not yet
  recognized as revenues.

In
  bundled software arrangements that include rights to multiple software products
  and/or services, the Company recognizes revenues using the residual method as
  prescribed by the Statement of Position 98-9 Modification of SOP No.
  97-2 Software Revenue Recognition with Respect to Certain Transactions.
  Under the residual method, revenues are allocated to the undelivered elements
  based on vendor specific objective evidence of fair value of the undelivered
  elements and the residual amount of revenues are allocated to the delivered
  elements. Vendor specific objective evidence of the fair value of maintenance
  contracts is based on renewal rates as determined by the prices paid by the
  Companys customers when maintenance is sold separately. Vendor specific
  objective evidence of fair value of training and consulting



Form
  20-F 2005  ILOG | F-7



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services
  is based upon daily rates as determined by the prices paid by the Companys
  customers when these services are sold separately.

Sales
  Returns

The
  Companys customers generally do not have the right to return product for
  credit or refund. Any potential sales returns are covered by the Companys
  allowance for doubtful accounts. The Company has not experienced any significant
  sales returns to date.

Guarantors
  Accounting for Guarantees

The
  Company from time to time enters into certain types of contracts that contingently
  require the Company to indemnify parties against third party claims. These contracts
  primarily relate to: (i) certain agreements with the Companys officers,
  directors and employees and third parties, under which the Company may be required
  to indemnify such persons for liabilities arising out of their duties to the
  Company and (ii) agreements under which the Company indemnifies customers and
  partners for claims arising from intellectual property infringements.

The
  terms of such obligations vary. Generally a maximum obligation is not stated.
  Because the obligated amount of these agreements are not explicitly stated,
  the overall maximum amount of the obligations cannot be reasonably estimated.
  Historically, the Company has not been obligated to make significant payments
  for these obligations, and no liabilities have been recorded for these obligations
  on its balance sheet as of June 30, 2005 and 2004.

The
  Company warrants that its software product will operate substantially in conformity
  with product documentation and that the physical media will be free of defect.
  The specific terms and conditions of the warranties vary depending upon the
  country in which the product is sold and the size of the transaction. The duration
  of the warranties range from 180 to 360 days. The Company provides for the costs
  of warranty when specific problems are identified. The Company has not experienced
  any significant warranty claims to date.

Accounts
  Receivable

Accounts
  receivable are stated at cost net of allowances for doubtful accounts. The Company
  makes judgments as to its ability to collect outstanding receivables and provides
  allowances for the portion of receivables when collection becomes doubtful.
  Provision is made based upon a specific review of all significant outstanding
  invoices. These estimates are based on our bad debt write-off experience, analysis
  of credit information, specific identification of probable bad debts based on
  our collection efforts, aging of accounts receivable and other known factors.
  Our actual results could differ from these estimates.

Net
  Income per Share

Basic
  net income per share is computed by dividing net income for the period by the
  weighted average number of common shares outstanding during the period. Diluted
  net income per share is computed by dividing net income by the weighted average
  number of common shares and dilutive equivalent shares outstanding during the
  period, and effect of purchase of own treasury shares. Dilutive equivalent shares
  consist of stock options and warrants. See also Note 11, Earnings Per
  Share.

Cash
  and Cash Equivalents

The
  Company considers all highly liquid investments purchased with an original maturity
  of three months or less to be cash equivalents.

Short-term
  Investments

The
  Company accounts for its marketable securities in accordance with SFAS 115,
  Accounting for Certain



Form
  20-F 2005  ILOG | F-8



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Investments
  in Debt and Equity Securities. The Company classifies its marketable securities
  as available-for-sale securities and records them at faire value with the unrealized
  gains and losses reported in other comprehensive income.

Financial
  Instruments

At
  June 30, 2005 and 2004, the carrying values of current financial instruments
  such as cash and cash equivalents, accounts receivable, accounts payable, other
  receivables, accrued liabilities and the current portion of capitalized lease
  obligations approximated their market values, based on the short-term maturities
  of these instruments.

The
  Company also enters into foreign exchange derivative financial instruments to
  reduce the foreign exchange rate risk of anticipated cash flows from transactions
  with subsidiaries denominated in currencies other than the euro. The Company
  complies with the Financial Accounting Standards Board issued Statement No.
  133, Accounting for Derivative Instruments and Hedging Activity
  (SFAS 133) as amended. SFAS 133 requires the recognition of all derivatives
  on the balance sheet at fair value. Derivatives that are not hedges of underlying
  transactions must be adjusted to fair value through income. If the derivative
  is a hedge, depending on the nature of the hedge, changes in the fair value
  of derivatives is either 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 immediately recognized
  in earnings. Fair value is determined by reference to published exchange rates.

Concentration
  of Credit Risk

Financial
  instruments that potentially subject the Company to concentrations of credit
  risk consist principally of cash, cash equivalents, short-term investments and
  trade receivables.

The
  Company has cash investment policies that limit investments to short-term low
  risk instruments. The Companys cash and cash equivalents are held principally
  in euros and primarily among CALYON and Société Générale.

The
  Company sells its products to customers in a variety of industries in Europe,
  North America and Asia. The Company performs ongoing credit evaluations of its
  customers and maintains allowances for potential credit losses. Collateral is
  generally not required.

Property
  and Equipment, net

Property
  and equipment is stated at cost less accumulated depreciation and amortization.
  Depreciation and amortization are computed using the straight-line method over
  the following estimated useful lives:

|Computer
        equipment and purchased software |  | 1-3
        years                      
|------------------------------------------------- |  | ---------------------------------------
|Furniture
        and other equipment             |  | 4-8
        years                      
|Leasehold
        improvements                    |  | 10
        years, or lease term if less

Amortization
  of capitalized leased equipment is included in depreciation expense.

Software
  Development Costs

The
  Company capitalizes eligible computer software costs upon achievement of technological
  feasibility subject to net realizable value considerations. The establishment
  of technological feasibility and the on-going assessment of the recoverability
  of these costs require managements judgment with respect to certain external
  factors, including, but not limited to, anticipated future gross license revenues,
  estimated economic life and changes in software and hardware technology. Research
  and development costs prior to the establishment of technological feasibility
  are expensed as incurred. Because the period between achievement of technological
  feasibility and the general release of the Companys products has been
  of relatively short duration, costs qualifying for capitalization were insignificant
  during the years ended June 30, 2005, 2004 and 2003, and accordingly, have been
  charged to research and development expenses in the accompanying income statements.



Form
  20-F 2005  ILOG | F-9



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Goodwill
  and intangible assets

Goodwill
  represents the excess of purchase price over the fair value of identifiable
  net assets of businesses acquired. Goodwill is not amortized but instead tested
  at least annually for impairment, or more frequently when events or change in
  circumstances indicate that the asset might be impaired by comparing the carrying
  value to the fair value of the reporting unit to which it is assigned.

Intangible
  assets consist primarily of purchased customer lists and purchased patents.
  The basis for valuation of these assets is their historical acquisition cost.
  Amortization of intangible assets is calculated by the straight-line method
  over the shorter of the contractual or estimated useful life of the assets (generally
  3 to 5 years).

Impairment
  of long-lived assets

The
  Company reviews the carrying value of its long-lived assets, including fixed
  assets and intangible assets, for impairment whenever events or changes in circumstances
  indicate that the carrying amount of such assets may not be fully recoverable.
  Recoverability of long-lived assets is assessed by a comparison of the carrying
  amount of the asset (or the group of assets, including the asset in question,
  that represents the lowest level of separately-identifiable cash flows) to the
  total estimated undiscounted cash flows expected to be generated by the asset
  or group of assets. If the future net undiscounted cash flows is less than the
  carrying amount of the asset or group of assets, the asset or group of assets
  is considered impaired and an expense is recognized equal to the amount required
  to reduce the carrying amount of the asset or group of assets to its then fair
  value. Fair value is determined by discounting the cash flows expected to be
  generated by the asset, when the quoted market prices are not available for
  the long-lived assets. Estimated future cash flows are based on assumptions
  and are subject to risk and uncertainty.

Research
  and Development Grants

The
  Company receives financial support for various research projects from public
  institutions. Such support is recorded as a reduction of research and development
  expenses in the periods when the projects are undertaken, the related expenses
  have been incurred and the funding has been committed by the public institutions.
  For the years ended June 30, 2005, 2004 and 2003, the financial support of $524,
  $509 and $622 thousands, respectively, has been reflected as reductions to the
  related research and development expenses in each such year.

Income
  Taxes

The
  Company uses the liability method in accounting for income taxes. Under this
  method, deferred tax assets and liabilities 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. A valuation allowance is established if,
  based on the weight of available evidence, it is more likely than not that some
  portion or all of the deferred tax asset will not be realized.

Treasury
  Stock

Treasury
  stock purchases are accounted for at cost. The sale of treasury stock is accounted
  for using the first in first out method. Gains on the sale or retirement of
  treasury stock are accounted for as additional paid-in capital whereas losses
  on the sale or retirement of treasury stock are recorded as additional paid-in-capital
  to the extent that previous net gains from sales or retirements of treasury
  stock are included therein, otherwise the losses shall be recorded to accumulated
  benefit (deficit) account.  Gains or losses from the sale or retirement
  of treasury stock do not affect reported results of operations. Treasury stock,
  under the current buy-back program, may be used to reduce the Companys
  share capital by cancellation of such shares, provide shares for distribution
  to the companys employees, and or be used in connection with an acquisition.



Form
  20-F 2005  ILOG | F-10



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Stock-based
  Compensation Plans

The
  Company has stock option and employee stock purchase plans, which are described
  in Note 9, Shareholders Equity. The Company accounts for these plans
  under the recognition and measurement principles of APB Opinion No. 25, Accounting
  for Stock Issued to Employees (APB 25). In accordance with APB 25, the
  Company recognizes stock-based employee compensation cost, over the vesting
  period, when the options granted under those plans have an exercise price lower
  than the market value of the underlying stock on the date of grant. The following
  table illustrates the effect on net income and earnings per share if the Company
  had applied the fair value recognition provisions of FASB Statement No. 123,
  Accounting for Stock-Based Compensation, to stock-based employee
  compensation. There was no stock compensation expense recorded by the Company
  in the years ended June 30, 2005, 2004 and 2003.

|                                                                                                                                     |  | Year
        Ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | -
|(in
        thousands of U.S. dollars except per share data)                                                                         |  | 2005                        |  
|Net
        income, as reported                                                                                                      |  | $6,727                      |  
|Total
        stock-based employee compensation expense determined under fair value
        based method, net of related tax effects |  | (5,860                      | )
|Pro
        forma net gain/(loss)                                                                                                    |  | $867                        |  
|Earnings
        (loss) per share:                                                                                                   |  |                             |  
|Basic,
        as reported                                                                                                           |  | $0.38                       |  
|Basic,
        pro forma                                                                                                             |  | $0.05                       |  
|Diluted,
        as reported                                                                                                         |  | $0.36                       |  
|Diluted,
        pro forma                                                                                                           |  | $0.05                       |  

The
  fair value of stock options and warrants granted during the year is estimated
  on the date of grant using the Black-Scholes option pricing model with the following
  assumptions:

|                                               |  | Year
        Ended June 30, |  
|---------------------------------------------- |  | --------------------------- | -
|                                               |  | 2005                        |  
|Weighted-average
        expected life (years) |  | 4                           |  
|Expected
        volatility rates              |  | 70                          | %
|Expected
        dividend yield                |  |                            |  
|Risk-free
        interest rate                |  | 3.0                         | %

The
  Black-Scholes option valuation model was developed for use in estimating the
  fair value of traded options, which have no vesting restrictions and are fully
  transferable. In addition, option valuation models require the input of highly
  subjective assumptions including the expected stock price volatility. Because
  the Companys employee stock options have characteristics significantly
  different from those of traded options, and because the changes in the subjective
  input assumptions can materially affect the fair value estimate, in managements
  opinion, the existing models do not necessarily provide a reliable single measure
  of the fair value of its employee stock options.

Advertising
  Costs

The
  Company expenses advertising costs as incurred. Advertising expenses totaled
  $3.9 million, $3.7 million and $3.5 million for the years ended June 30, 2005,
  2004, and 2003, respectively.

Shipping
  and Handling

Shipping
  and handling costs related to license fees are included in cost of license fees,
  for all periods presented. Shipping and handling costs related to maintenance
  releases are included in cost of maintenance.



Form
  20-F 2005  ILOG | F-11



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Recent
  Accounting Pronouncements

On
  December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS
  No. 123 (revised 2004), Share-Based Payment, which is a revision
  of SFAS No. 123, Accounting for Stock-Based Compensation. Statement
  123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
  and amends SFAS No. 95, Statement of Cash Flows. Generally, the
  approach in Statement 123(R) is similar to the approach described in Statement
  123.  However, Statement 123(R) requires all share-based payments to employees,
  including grants of employee stock options, to be recognized in the income statement
  based on their fair values. Pro forma disclosure is no longer an alternative.
  Statement 123(R) permits public companies to adopt its requirements using one
  of two methods:

a)

Modified
  prospective method: Compensation cost is recognized beginning with the effective
  date of adoption (a) based on the requirements of Statement 123(R) for all share-based
  payments granted after the effective date of adoption and (b) based on the requirements
  of Statement 123 for all awards granted to employees prior to the effective
  date of adoption that remain unvested on the date of adoption.

b)

Modified
  retrospective method: Includes the requirements of the modified prospective
  method described above, but also permits restatement using amounts previously
  disclosed under the pro forma provisions of Statement 123 either for (a) all
  prior periods presented or (b) prior interim periods of the year of adoption.

On
  April 14, 2005, the Securities and Exchange Commission announced that the Statement
  123(R) effective transition date will be extended to annual periods beginning
  after June 15, 2005. We expect to adopt this new standard on July 1, 2005, using
  the modified prospective method. As permitted by Statement 123, the company
  currently accounts for share-based payments to employees using Opinion 25s
  intrinsic value method and, as such, generally recognizes no compensation cost
  for employee stock options. Although the adoption of Statement 123(R)'s fair
  value method will have no adverse impact on our balance sheet or total cash
  flows, it will affect our net income and diluted earnings per share. The impact
  of adoption of Statement 123(R) cannot be predicted at this time because it
  will depend on levels of share-based payments granted in the future.  However,
  had we adopted Statement 123(R) in prior periods, the impact of that standard
  would have approximated the impact of Statement 123 as described in the disclosure
  of pro forma net income and earnings per share in Note 1 to our Consolidated
  Financial Statements.

In
  December 2004, the FASB issued Statement 153, Exchanges of Non-monetary Assets,
  an Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions
  (FAS 153). This Statement eliminates the exception from fair value measurement
  for non-monetary exchanges of similar productive assets and replaces it with
  an exception for exchanges that do not have commercial substance. FAS 153, is
  effective for non-monetary asset exchanges occurring in fiscal periods beginning
  after June 15, 2005 and is not expected to have a material impact on the Companys
  results of operations, cash flows or financial position.

On
  June 7, 2005, the FASB issued Statement No. 154, Accounting Changes and
  Error Corrections, a replacement of APB Opinion No. 20, Accounting
  Changes, and Statement No. 3, Reporting Accounting Changes in Interim
  Financial Statements. Statement 154 changes the requirements for the accounting
  for and reporting of a change in accounting principle. Previously, most voluntary
  changes in accounting principles were required recognition via a cumulative
  effect adjustment within net income of the period of the change. Statement 154
  requires retrospective application to prior periods' financial statements, unless
  it is impracticable to determine either the period-specific effects or the cumulative
  effect of the change. Statement 154 is effective for accounting changes made
  in fiscal years beginning after December 15, 2005; however, the Statement does
  not change the transition provisions of any existing accounting pronouncements.
  We do not believe adoption of Statement 154 will have a material effect on our
  consolidated financial position, results of operations or cash flows.



Form
  20-F 2005  ILOG | F-12



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2.

Cash
  and Cash Equivalents

Cash
  and cash equivalents include:

|                                        |  | June
        30,      
|--------------------------------------- |  | ----------------------
|                                        |  | 2005                  
|                                        |  | (in
        thousands)
|Cash
        held at bank               |  |                       
|Cash
        equivalents                |  |                       
|Total
        cash and cash equivalents |  |                       

Cash
  equivalents consist principally of certificates of deposits and commercial paper.
  Interest income related to cash and cash equivalent totaled $834, $689 and $756
  for the years ended June 30, 2005, 2004 and 2003 respectively, and are reported
  on the line Interest income of the income statement.

3.

Short-Term
  Investments

Short-Term
  Investments are comprised of investments in money market mutual funds which
  include monetary Société dInvestissement à Capital Variable
  (SICAV) and Fonds Communs de Placement (FCP).
  At June 30, 2005 and 2004 such highly liquid investments amounted to $0 and
  $22.1 million, respectively. Gross realized gains on sales of these available-for-sale
  securities amounted to 173, 76 and 0 for the years ended June 30, 2005, 2004
  and 2003, respectively, and are reported on the line Interest income
  of the income statement. There was no unrealized holding gain or loss at June
  30, 2005 and 2004.

4.

Financial
  Instruments

The
  following tables present the fair values of financial instruments at June 30,
  2005 and 2004 (amounts in thousands):

|                                                                                                                        |  |  | Year
        Ended June 30, 2005
|----------------------------------------------------------------------------------------------------------------------- |  |  | --------------------------------
|                                                                                                                        |  |  | Notional
      Amount           
|Fair
        value hedges of intercos receivables invoiced in local currency 
        and to be collected within 1 year |  |  |                                 
|Forward
        and option contracts selling U.S. dollars against euros                                                 |  |  | $4,009                          
|Forward
        and option contracts selling other currencies against euros                                             |  |  | 495                             
|Total                                                                                                                   |  |  | $4,504                          
|Cash
        flow hedges of intercos royalties to be invoiced and collected within
        1 year                       |  |  |                                 
|Forward
        and option contracts selling U.S. against euros                                                         |  |  | $3,340                          
|Total                                                                                                                   |  |  | $3,340                          





Form
  20-F 2005  ILOG | F-13



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|                                                                                                                        |  |  | Year
        Ended June 30, 2004
|----------------------------------------------------------------------------------------------------------------------- |  |  | --------------------------------
|                                                                                                                        |  |  | Notional
      Amount           
|Fair
        value hedges of intercos receivables invoiced in local currency 
        and to be collected within 1 year |  |  |                                 
|Forward
        and option contracts selling U.S. dollars against euros                                                 |  |  | $1,388                          
|Forward
        and option contracts selling other currencies against euros                                             |  |  | 454                             
|Total                                                                                                                   |  |  | $1,842                          
|Cash
        flow hedges of intercos royalties to be invoiced and collected within
        1 year                       |  |  |                                 
|Forward
        and option contracts selling U.S. against euros                                                         |  |  | $2,250                          
|                                                                                                                        |  |  |                                 
|Total                                                                                                                   |  |  | $2,250                          

The
  Company enters into foreign exchange derivative financial instruments to reduce
  the foreign exchange rate risk of anticipated cash flows from transactions with
  subsidiaries denominated in currencies other than the euro. The fair value of
  foreign currency related derivatives are included in the balance sheet in other
  assets and other liabilities. The earnings impact of cash flow hedges relating
  to forecasted transactions is reported on the line Other, net of
  the income statement. Realized and unrealized gains and losses on these instruments
  are deferred in accumulated other comprehensive income until the underlying
  transaction is recognized in earnings.

During
  the year ended June 30, 2005 and 2004, the Company deferred to other comprehensive
  income $(319) and $13 thousands respectively, related to the effective portion
  of its cash flow hedges.

These
  financial instruments have a maturity date of less than 12 months. Management
  believes counterparty risk on financial instruments is minimal since the Company
  deals with major banks and financial institutions.

The
  Company does not use derivative financial instruments for trading or speculative
  purposes.

5.

Property
  and Equipment, net

Changes
  in property and equipment are as follows:

|(in
        thousands)                              |  |  | As
        of
        June 30, 2004 |   | Additions |   | Retirements |   | Exchange
        rate
        differences |   |  | As
        of
        June 30, 2005 |  
|--------------------------------------------------- |  |  | ----------------------------------- | - | --------- | - | ----------- | - | ----------------------------------------- | - |  | ----------------------------------- | -
|Gross
        carrying amounts :                    |  |  |                                     |   |           |   |             |   |                                           |   |  |                                     |  
|Computer
        equipment                          |  |  | $8,103                              |   | 1,208     |   | (330        | ) | (61                                       | ) |  | $8,920                              |  
|Furniture
        and other equipment               |  |  | 2,843                               |   | 121       |   | (31         | ) | (10                                       | ) |  | 2,923                               |  
|Leasehold
        improvements                      |  |  | 1,890                               |   | 139       |   |            |   | (10                                       | ) |  | 2,019                               |  
|Purchased
        software                          |  |  | 6,317                               |   | 1,420     |   | (21         | ) | (66                                       | ) |  | 7,650                               |  
|Construction
        in progress                    |  |  |                                    |   | 136       |   |            |   | (9                                        | ) |  | 127                                 |  
|Gross
        carrying amounts                      |  |  | 19,153                              |   | 3,024     |   | (382        | ) | (156                                      | ) |  | 21,639                              |  
|Accumulated
        depreciation and amortization : |  |  |                                     |   |           |   |             |   |                                           |   |  |                                     |  
|Computer
        equipment                          |  |  | (6,334                              | ) | (1,251    | ) | 330         |   | 55                                        |   |  | (7,200                              | )
|Furniture
        and other equipment               |  |  | (2,210                              | ) | (180      | ) | 31          |   | 11                                        |   |  | (2,348                              | )
|Leasehold
        improvements                      |  |  | (1,099                              | ) | (206      | ) |            |   | 9                                         |   |  | (1,296                              | )
|Purchased
        software                          |  |  | (5,552                              | ) | (795      | ) | 21          |   | 37                                        |   |  | (6,289                              | )
|Accumulated
        depreciation and amortization   |  |  | (15,195                             | ) | (2,432    | ) | 382         |   | 112                                       |   |  | (17,133                             | )
|Property
        and equipment net                  |  |  | $3,958                              |   | 592       |   |            |   | (44                                       | ) |  | $4,506                              |  



Form
  20-F 2005  ILOG | F-14



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Depreciation
  and amortization expense related to property and equipment totaled $2.4 million,
  $3.5 million and $3.5 million for the years ended June 30, 2005, 2004 and
  2003, respectively.

Equipment
  purchased under capital leases in the years ended June 30, 2005 and 2004 totaled
  $600 and $430 respectively. The cost of such equipment included in property
  and equipment at June 30, 2005 and 2004 totaled $3.6 million and $3.0 million,
  respectively. Accumulated depreciation of this equipment totaled $2.7 million,
  $2.2 million, and $1.5 million at June 30, 2005, 2004 and 2003, respectively.

6.

Intangible
  assets, net and Goodwill

Changes
  in intangible assets and goodwill are as follows:

|(in
        thousands)                                    |  |  | As
        of
        June 30, 2004 |  | Additions |  | Retirement |  | Exchange
        rate
        Differences |  | As
        of
        June 30, 2005 | 
|--------------------------------------------------------- |  |  | ----------------------------------- |  | --------- |  | ---------- |  | ----------------------------------------- |  | ----------------------------------- | 
|Goodwill                                                  |  |  |                                    |  | 920       |  |           |  | (7)                                       |  | 913                                 | 
|Total
        impairment of goodwill                      |  |  |                                    |  |          |  |           |  |                                          |  |                                    | 
|Total
        goodwill-net                                |  |  | $                                  |  | 920       |  |           |  | (153)                                     |  | $913                                | 
|                                                          |  |  |                                     |  |           |  |            |  |                                           |  |                                     | 
|Property
        rights                                   |  |  | $2,034                              |  | 500       |  |            |  | (16)                                      |  | $2,518                              | 
|Customer
        lists                                    |  |  |                                     |  | 561       |  |            |  | 6                                         |  | 567                                 | 
|Total
        intangible assets-gross                     |  |  | 2,034                               |  | 1,061     |  |            |  | (10)                                      |  | 3,085                               | 
|                                                          |  |  |                                     |  |           |  |            |  |                                           |  |                                     | 
|Total
        accumulated amortization                    |  |  | (1,449)                             |  | (493)     |  |           |  | 23                                        |  | (1,919)                             | 
|Total
        intangible assets-net                       |  |  | $585                                |  | 568       |  |           |  | 13                                        |  | $1,166                              | 
|                                                          |  |  |                                     |  |           |  |            |  |                                           |  |                                     | 
|Total
        Goodwill and intangible 
        assets-net |  |  | $585                                |  | 1,488     |  |           |  | (140)                                     |  | $2,079                              | 

On
  July 2, 2004, ILOG purchased the intellectual property and other selected assets
  of the JLoox product line for $1,793 in cash from eNGENUITY Technologies Inc.,
  a Montreal, Canada-based software provider. The purchase price includes acquisition
  related costs of $306. The financial results of JLoox were included in the Companys
  Consolidated Financial Statements beginning July 2, 2004, the acquisition date.
  JLOOX is used for the development of advanced visual applications. The acquisition
  is accounted for as a business combination and the excess of the purchase price
  over the fair value of identifiable net assets was recorded as goodwill.

Goodwill
  is not amortized but instead tested at least annually for impairment, or more
  frequently when events or change in circumstances indicate that the asset might
  be impaired by comparing the carrying value to the fair value of the reporting
  unit to which it is assigned. The Company completed the required annual impairment
  test in the fourth quarter of fiscal year 2005. JLoox goodwill was assigned
  to the visualization products line reporting unit. To determine the fair value
  of the Company's reporting unit, the Company used the discounted cash flow approach
  over a five-year period with a 13% discount rate. The fair value of the reporting
  unit was in excess of the reporting unit carrying value resulting in no goodwill
  impairment at June 30, 2005.

The
  purchase price allocation was finalized in June 2005 as follows:



|Intangible
        assets    | 1,061
|---------------------------- | -----
|Assumed
        liabilities  | (186)
|Goodwill                     | 920  
|Total
        purchase price | 1,793

Had
  this acquisition occurred on July 1, 2003, such acquisition would not have had
  any material impact on revenues, net income and earning per share for fiscal
  year 2004.

Intangible
  assets are amortized over three to five years and related amortization expense
  was $0.5 million, $0.4 million and $0.1 million for the years ended June
  30, 2005, 2004 and 2003.



Form
  20-F 2005  ILOG | F-15



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The
  determination of the fair value of intangible assets was based on a valuation
  performed by an external adviser using an income approach and assumptions provided
  by management. The rates utilized to discount net cash flows to their present
  value were based on weighted average cost of capital and ranged from 10.5% to
  13%.

In
  October 2004, the Company purchased 12.5% of the outstanding common stocks of
  RTO Technologies Incorporation, a South Korean corporation, for $500 in cash.
  Such investment is accounted for under the equity method. The excess of the
  purchase price over the fair value of identifiable net assets amounted to $414.
  The $500 investment in equity, including goodwill, is recorded in other
  assets.

7.

Capital
  Lease Obligation

Future
  minimum lease payments under capitalized lease obligations due for the years
  ending June 30 are as follows (in thousands):

|2006                                                |  | $448 | 
|--------------------------------------------------- |  | ---- | 
|2007                                                |  | 265  | 
|2008                                                |  | 104  | 
|Minimum
        lease payments                      |  | 817  | 
|Less
        amount representing interest           |  | 27   | 
|Present
        value of net minimum lease payments |  | 790  | 
|Less
        current portion                        |  | 429  | 
|Long-term
        portion                           |  | $361 | 

Interest
  paid in the years ended June 30, 2005, 2004 and 2003 totaled $33, $69 and $95
  respectively.

8.

Pensions,
  Retirement Indemnities and other Post-Employment Benefits

The
  Company provides retirement benefits for most of its employees, either directly
  or by contributing to independently administered funds. The way these benefits
  are provided varies according to the legal, fiscal and economic conditions of
  each country in which we operate.

The
  Company provides retirement benefits under defined contribution and/or defined
  benefit plans. In some cases, employees may also contribute to the plans.

In
  the case of defined contribution plans, the Company pays contributions to publicly
  or privately administered pension insurance plans on a contractual basis. Once
  the contributions have been paid, the Company has no further payment obligations.

The
  Companys United States subsidiary has a defined contribution 401(k)
  Plan being offered to all eligible employees. Participants may contribute a
  percentage of their total earnings up to a maximum annual amount as set by the
  Internal Revenue Service. The Company matches employee contributions at the
  rate of $0.25 for each U.S. dollar contributed up to $2,500 per calendar year.
  Net Company matching contributions to the Plan totaled approximately $296 in
  fiscal year 2005, $319 in fiscal year 2004 and $289 thousands in fiscal year
  2003.

In
  France, retirement indemnities are based upon an individuals years of
  credited service and annualized salary at retirement. Retirement indemnity benefits
  vest as a lump sum paid to the employee at retirement date. Estimated retirement
  indemnities are accrued over the working life of the employees using actuarial
  assumptions and calculations. The related liability is not funded, and is included
  under accrued compensation. Actuarial losses are amortized over the estimated
  remaining service period of employees.



Form
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Weighted
  average assumptions used to measure on June 30, 2005, 2004 and 2003 the benefit
  obligation under the French defined benefit plan are as follows:

|                                         | June
        30,
|---------------------------------------- | ----------------
|                                         | 2005            
|                                         |                 
|Discount
        rate                    |                 
|Salary
        growth                    |                 
|Retirement
        age                   |                 
|Average
        remaining service period | 25,6            

The
  components of net periodic benefit cost are as follows:

|                                         | June
        30,      
|---------------------------------------- | ----------------------
|                                         | 2005                  
|                                         | (in
        thousands)
|Service
        cost                     |                       
|Interest
        cost                    |                       
|Amortization
        of actuarial losses |                       
|Net
        periodic pension cost        |                       

Changes
  in the recorded liability of the benefit plans were as follows:

|                                                           |  | June
        30,      
|---------------------------------------------------------- |  | ----------------------
|                                                           |  | 2005                  
|                                                           |  | (in
        thousands)
|Change
        in  projected benefit obligations           |  |                       
|Projected
        benefit obligations at beginning of year |  | $
        1,267       
|Service
        cost                                       |  | 157                   
|Interest
        cost                                      |  | 67                    
|Amortization
        of actuarial losses                   |  | 26                    
|Actuarial
        losses (gains)                           |  | (304)                 
|Benefits
        paid                                      |  |                      
|Translation
        differences                            |  | (8)                   
|Projected
        benefit obligations at year end          |  | $1,205                



|                                             |  | June
        30,      
|-------------------------------------------- |  | ----------------------
|                                             |  | 2005                  
|                                             |  | (in
        thousands)
|Unfunded
        obligations at year end     |  | $1,205                
|Unrecognized
        prior service cost      |  | (215)                 
|Unrecognized
        actuarial losses        |  | (310)                 
|Adjustment
        for minimum liability     |  |                      
|Net
        recognized liability at year end |  | $681                  

The
  Company recorded additional minimum pension liability at June 30, 2004 as required
  when the accumulated benefit obligation in the plan exceeds the accrued liability.
  This adjustment was recorded in other comprehensive income and reversed at June
  30, 2005, as accrued pension liability exceeds accumulated benefit obligation
  at this date.



Form
  20-F 2005  ILOG | F-17



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9.

Shareholders
  Equity

General

At
  June 30, 2005 and 2004, the issued and outstanding share capital of the Company
  consisted of 18,005,407 and  17,625,699 shares, respectively, with a nominal
  value of €1.00 at June 30, 2005 and €0.61 at June 30, 2004 .

The
  Shareholders’ meeting of November 30, 2004 authorized the increase of
  the shares nominal value from €0.61 to €1.00. This has been reflected
  as an adjustment between par and additional paid in capital.

Preemptive
  Subscription Rights

Shareholders
  have preemptive rights to subscribe on a pro-rata basis for additional shares
  issued by the Company for cash. Shareholders may waive such preemptive subscription
  rights at an Extraordinary General Meeting of shareholders under certain circumstances.
  Preemptive subscription rights, if not previously waived, are transferable during
  the subscription period relating to a particular offer of shares.

Dividend
  Rights

Dividends
  may be distributed from the statutory retained earnings, subject to the requirements
  of French law and the Companys by laws. The Company has not distributed
  any dividends since its inception. The accumulated profit for statutory purposes
  totaled approximately $6.5 million at June 30, 2005, and a deficit of $46.5
  million at June 30, 2004. Dividend distributions, if any, will be made in euros.

Repurchase
  of own shares

At
  June 30, 2005, the Company had repurchased 59,185 shares of its own treasury
  stock according to its repurchase program, at an average price of €9.
  90, and for a total purchase price of €586 ($713).

Stock
  Options and Warrants

Stock
  options have been granted to employees under the Company’s 1996, 1998
  and 2001 Stock Option Plans. No options have been granted under the 2004 Stock
  Option Plan.

All
  Options granted under the 1996, 1998, 2001 and 2004 Plans have a term of ten
  years, other than Options granted to employees in the United Kingdom which have
  a term of seven years less one day. One-fourth of the shares subject to option
  vest 12 months after the date of grant of options and  1/48 of the shares
  vest each month thereafter provided the optionee continues to render services
  to the Company. Generally, and unless otherwise specified, if an optionee terminates
  his or her employment with the Company, the optionee may exercise only those
  options vested as of the date of termination and must effect such exercise within
  three months except for optionees, who are French tax residents at the date
  of grant of the Options, who may exercise their Options until the termination
  of the term of their Options. In general, if an optionee dies during his or
  her employment, or within three months after termination of employment, such
  persons options may be exercised up to six months after his or her death
  to the extent vested at the time of his or her death or termination. No Option
  may be transferred by the optionee other than by will or the laws of intestacy.

The
  exercise price of the shares under option is equal to the closing market price
  for a Share on the last trading day preceding the date of the grant of the options,
  provided that the issue price is not less than (i) 80% of the average of the
  closing prices quoted for a Share during the twenty trading days preceding such
  date of grant and (ii) 80% of the average repurchase price of any shares held
  by the Company.

In
  December 1996, the French parliament adopted a law that requires French companies
  and optionees to pay French social contributions and certain salary-based taxes,
  which may represent, for the Company, up to 45% of the taxable



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salary,
  on the difference between the exercise price of a stock option and the fair
  market value of the underlying shares on the exercise date, if the beneficiary
  is a French resident subject to French social security at the date of grant
  of the stock options and disposes of the shares, or converts the shares into
  bearer form, before the fifth anniversary of the date of grant of the option.
  In addition, such difference is treated as ordinary income for personal income
  tax purposes if the shares are sold or otherwise disposed of within five years
  of the grant date. This applies to all options granted to French residents exercised
  after January 1, 1997. The Company thus subjects options granted to French residents
  after January 1, 1997 to a minimum five-year holding period in order to benefit
  from the favorable tax treatment. In addition, pursuant to a Law of July 2,
  1998, both the beneficiary and the Company are exempt from social contributions
  if the options were granted before January 1, 1997, are exercised after April
  1, 1998 and provided the Company has not been registered for more than 15 years.
  According to a Law of May 15, 2001, the five-year holding period is reduced
  to four years with respect to stock options granted on or after April 27, 2000.
  In addition, with respect to options exercised after January 1, 1995, an excessive
  discount, as determined by French law, is subject to French social contributions
  at the exercise date.

The
  Company has not recorded a liability for social contributions and certain salary-based
  taxes which may be assessed for options granted as of June 30, 2005, as the
  liability, being dependent on future values of the Companys shares and
  the timing of employees decisions to exercise options and sell the related
  shares, cannot be estimated. The Company also does not consider that the liability
  is probable due to the income tax disincentives to employees of exercising options
  and selling the shares prior to the end of the minimum holding period which
  permits the favorable tax treatment.

A
  summary of activity under the Stock Option Plans is as follows:

|                                  |  | Shares
        Reserved for Future
        Grants
        (in thousands) |   | Options
        Granted and
        Outstanding 
        (in thousands) |   | Weighted
        
        Average 
        Exercise Price 
        (in euros) |  | Weighted
        Average
        Exercise Price 
        (in U.S. dollars)
|--------------------------------- |  | ------------------------------------------------------------------------ | - | ----------------------------------------------------------------------- | - | ----------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|Balances
        at June 30, 2001 |  | 392                                                                      |   | 4,244                                                                   |   | 18.14                                                                         |  | 15.37                                                                     
|Options
        authorized        |  | 1,100                                                                    |   |                                                                        |   |                                                                              |  |                                                                          
|Options
        granted           |  | (1,253                                                                   | ) | 1,253                                                                   |   | 8.60                                                                          |  | 7.70                                                                      
|Options
        exercised         |  |                                                                         |   | (151                                                                    | ) | 6.25                                                                          |  | 5.60                                                                      
|Options
        canceled          |  | 156                                                                      |   | (156                                                                    | ) | 26.83                                                                         |  | 24.04                                                                     
|Plan
        termination          |  | (12                                                                      | ) |                                                                        |   |                                                                              |  |                                                                          
|Balances
        at June 30, 2002 |  | 383                                                                      |   | 5,190                                                                   |   | 15.92                                                                         |  | 15.88                                                                     
|Options
        authorized        |  |                                                                         |   |                                                                        |   |                                                                              |  |                                                                          
|Options
        granted           |  | (21                                                                      | ) | 21                                                                      |   | 2.92                                                                          |  | 3.06                                                                      
|Options
        exercised         |  |                                                                         |   | (15                                                                     | ) | 5.38                                                                          |  | 5.64                                                                      
|Options
        canceled          |  | 121                                                                      |   | (121                                                                    | ) | 23.25                                                                         |  | 24.38                                                                     
|Plan
        termination          |  | (8                                                                       | ) |                                                                        |   |                                                                              |  |                                                                          
|Balances
        at June 30, 2003 |  | 475                                                                      |   | 5,075                                                                   |   | 15.72                                                                         |  | 17.76                                                                     
|Options
        authorized        |  |                                                                         |   |                                                                        |   |                                                                              |  |                                                                          
|Options
        granted           |  | (523                                                                     | ) | 523                                                                     |   | 10.74                                                                         |  | 12.78                                                                     
|Options
        exercised         |  |                                                                         |   | (74                                                                     | ) | 6.57                                                                          |  | 7.82                                                                      
|Options
        canceled          |  | 86                                                                       |   | (86                                                                     | ) | 24.55                                                                         |  | 29.22                                                                     
|Balances
        at June 30, 2004 |  | 36                                                                       |   | 5,438                                                                   |   | 15.23                                                                         |  | 18.59                                                                     
|Options
        authorized        |  | 800                                                                      |   |                                                                        |   |                                                                              |  |                                                                          
|Options
        granted           |  | (30                                                                      | ) | 30                                                                      |   | 9.68                                                                          |  | 12.32                                                                     
|Options
        exercised         |  |                                                                         |   | (235                                                                    | ) | 6.18                                                                          |  | 7.86                                                                      
|Options
        canceled          |  | 150                                                                      |   | (150                                                                    | ) | 27.51                                                                         |  | 35.00                                                                     
|Plan
        termination          |  | (5                                                                       | ) |                                                                         |   | 27.51                                                                         |  | 35.00                                                                     
|Balances
        at June 30, 2005 |  | 951                                                                      |   | 5,083                                                                   |   | 15.25                                                                         |  | 18.44                                                                     



Form
  20-F 2005  ILOG | F-19



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At
  June 30, 2005, 2004 and 2003, 4,628,096, 4,398,094 and 3,851,722, respectively,
  of the outstanding options were exercisable at weighted average exercise prices
  of €15.76 ($19.06), €15.90 ($19.40) and €14.65 ($16.74) respectively.
  Exercise prices for options outstanding as of June 30, 2005 were as follows:



|                                                   |  | Stock
        Options Outstanding                         |  | Stock
        Options Exercisable                                                      
|-------------------------------------------------- |  | --------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|Range
        of exercise 
        prices in euros |  | Number
        of 
        shares 
        (in thousands) |  | Weighted
        
        average 
        remaining 
        contractual 
        life
|0
         to 5.15                                 |  | 112                                                       |  | 2.3                                                                                    
|5.16
         to  10.30                            |  | 3,290                                                     |  | 4.3                                                                                    
|10.31
         to  15.45                           |  | 547                                                       |  | 7.6                                                                                    
|15.46
         to  36.05                           |  | 44                                                        |  | 5.5                                                                                    
|36.06
         to  41.20                           |  | 860                                                       |  | 5.3                                                                                    
|46.35
         to  51.50                           |  | 230                                                       |  | 5.0                                                                                    
|                                                   |  | 5,083                                                     |  | 4.8                                                                                    

The
  weighted average remaining contractual life of those options is 4.8 years.

Warrants
  have been granted to non-executive Directors and members of the Companys
  Technical Advisory Board. The warrants may be exercised anytime within 5 years
  of the date of grant.

|                                 |  | Warrants
        Granted and 
        Outstanding |   | Weighted
        Average 
        Exercise Price in 
        euros |  | Weighted
        Average 
        Exercise Price in 
        U.S. dollars
|-------------------------------- |  | ------------------------------------------------- | - | ------------------------------------------------------------------ |  | -------------------------------------------------------------------------
|Balance
        at June 30, 2002 |  | 180,000                                           |   | 29.01                                                              |  | 28.94                                                                    
|Warrants
        granted         |  | 76,000                                            |   | 7.07                                                               |  | 7.41                                                                     
|Balance
        at June 30, 2003 |  | 256,000                                           |   | 22.50                                                              |  | 25.71                                                                    
|Warrants
        granted         |  | 76,000                                            |   | 10.59                                                              |  | 12.60                                                                    
|Warrants
        exercised       |  | (12,000                                           | ) | 6.01                                                               |  | 7.15                                                                     
|Warrants
        canceled        |  | (16,000                                           | ) | 10.45                                                              |  | 12.44                                                                    
|Balance
        at June 30, 2004 |  | 304,000                                           |   | 20.82                                                              |  | 25.40                                                                    
|Warrants
        granted         |  | 56,000                                            |   | 9.35                                                               |  | 11.90                                                                    
|Warrants
        exercised       |  | (4,000                                            | ) | 7.55                                                               |  | 9.61                                                                     
|Warrants
        canceled        |  |                                                  |   |                                                                   |  |                                                                         
|Balance
        at June 30, 2005 |  | 356,000                                           |   | 19.16                                                              |  | 23.17                                                                    

As
  allowed under SFAS 123, the Company has elected to continue using APB 25 in
  accounting for its employee stock options and warrants. Under APB 25, when the
  exercise price of the Companys employee stock options or warrants is less
  than the market price of the underlying shares at the date of grant, deferred
  compensation expense is recognized and is being amortized over the vesting period.
  In addition, under SFAS 123, compensation expense is recognized for the warrants
  granted to the members of the Technical Advisory Board in exchange for their
  services. During the years ended June 30, 2005, 2004 and 2003, the Company recorded
  compensation expense related to these warrants of $0, $69 and $66 thousands
  respectively.

Additional
  information relating to the fair value of granted options and warrants are available
  in note 1.



Form
  20-F 2005  ILOG | F-20



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Employee
  Stock Purchase Plan

Under
  the provisions of the Companys employee stock purchase plans, employees
  can purchase the Companys stock at a specified price through payroll deductions
  or direct contributions during an offering period. In December 2003 the Companys
  shareholders authorized the issuance of up to 1,000,000 shares to employees
  pursuant to the terms of these Plans. 140,643 shares were issued under the Plans
  during the year ended June 30, 2005. During the years ended June, 2004 and 2003,
  638,018 and 215,677 shares, respectively, were issued under the Plans.

10.

Other
  comprehensive income

The
  components of accumulated other comprehensive income are as follows:

|                                                      |  |  | June
        30,      
|----------------------------------------------------- |  |  | ----------------------
|                                                      |  |  | 2005                  
|                                                      |  |  | (in
        thousands)
|Minimum
        pension liability adjustment          |  |  | $                    
|Unrealized
        gains (losses) on cash flow hedges |  |  | (157)                 
|Translation
        adjustment                        |  |  | 3
        866         
|Accumulated
        other comprehensive income        |  |  | $3
        709        



11.

Net
  Income per Share

The
  following table sets forth the computation of basic and diluted net income per
  share:

|                                                                                                              |  | Year
        Ended June 30,                     
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------
|                                                                                                              |  | 2005                                            
|                                                                                                              |  | (in
        thousands, except per share amounts)
|Numerator:                                                                                                    |  |                                                 
|Net
        income                                                                                            |  | $6,727                                          
|                                                                                                              |  |                                                 
|Denominator:                                                                                                  |  |                                                 
|Weighted
        average shares outstanding                                                                   |  | 17,815                                          
|Purchase
        of own treasury shares                                                                       |  | (6                                              
|Incremental
        shares attributable to shares exercisable under employee stock plans and
        warrants |  | 913                                             
|Denominator
        for diluted earnings per share                                                            |  | 18,722                                          
|Net
        income per share  basic                                                                          |  | $0.38                                           
|Net
        income per share  diluted                                                                        |  | $0.36                                           



12.

Income
  Taxes

Income
  before income taxes comprises of the following components:

|                          |  | Year
        Ended June 30, | 
|------------------------- |  | --------------------------- | 
|                          |  | 2005                        | 
|                          |  |                             | 
|France                    |  | $6,126                      | 
|United
        States     |  | 3                           | 
|Rest
        of the world |  | 1,248                       | 
|Total                     |  | $7,377                      | 



Form
  20-F 2005  ILOG | F-21



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The
  provision for income taxes consists of the following:

|                                            |  | Year
        Ended June 30, |  
|------------------------------------------- |  | --------------------------- | -
|                                            |  | 2005                        |  
|Current:                                    |  |                             |  
|France                                      |  | $
        (208              | )
|United
        States                       |  | 272                         |  
|Rest
        of the world                   |  | 637                         |  
|Total
        current                       |  | 701                         |  
|Deferred
        and witholding taxes:      |  |                             |  
|Rest
        of the world                   |  | (51)                        |  
|Total
        deferred and witholding taxes |  | 650                         |  
|                                            |  | $650                        |  

A
  reconciliation of income taxes computed at the French statutory rate (33.83%
  in 2005, 34.33% in 2004, and 35.40% in 2003) to the income tax expense is as
  follows:

|                                                                 |  | Year
        Ended June 30, | 
|---------------------------------------------------------------- |  | --------------------------- | 
|                                                                 |  | 2005                        | 
|Income
        tax expense computed at the French statutory rate |  | $2,495                      | 
|Effect
        of foreign tax rates differential                 |  | 449                         | 
|Research
        & Development Credit                            |  | (505)                       | 
|Change
        in valuation allowance                            |  | (2,171)                     | 
|Other
        individually immaterial items                      |  | 382                         | 
|Total                                                            |  | $650                        | 

Significant
  components of the Companys deferred tax assets and liabilities consist
  of the following:

|                                                                        |  | Year
        Ended June 30, |  
|----------------------------------------------------------------------- |  | --------------------------- | -
|                                                                        |  | 2005                        |  
|Deferred
        tax assets:                                            |  |                             |  
|Net
        operating loss carryforwards                                |  | $26,894                     |  
|Acquired
        intangibles capitalized and amortized for tax purposes |  | 447                         |  
|Provisions
        and accruals not currently deductible                |  | 1,173                       |  
|Other                                                                   |  |                            |  
|                                                                        |  | 28,515                      |  
|Valuation
        allowance                                             |  | (28,308                     | )
|Net
        deferred taxes                                              |  | $207                        |  

In
  fiscal year 2005, French Fiscal regulations have allowed all net operating loss
  carryforwards not to expire. As of June 30, 2005 the Company had therefore net
  operating loss carryforwards for French tax purposes of approximately $33.3
  million which have no expiration date. The Company also has U.S. net operating
  loss carryforwards for federal tax purposes of approximately $41.8 million and
  for state tax purposes of approximately $11.1 million, that expire in the years
  2006 through 2025. The Company has U.K. net operating losses of approximately
  $3.3 million, which have no expiration date. The utilization of these net operating
  loss carryforwards is limited to the future operations of the Company in the
  tax jurisdictions in which such carryforwards arose.

Due
  to its history of losses in these tax jurisdictions which account for a significant
  portion of the Companys deferred tax assets, the Company does not believe
  that sufficient objective, positive evidence exists to conclude that recoverability
  of its net deferred tax assets is more likely than not. Consequently, the Company
  has provided valuation allowances covering most of its net deferred tax assets
  in these respective tax jurisdictions. Deferred tax assets have been recorded
  in tax paying jurisdictions to the extent the amounts are considered recoverable.



Form
  20-F 2005  ILOG | F-22



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13.

Commitments
  and Contingencies

Commitments

The
  Company leases its facilities and certain equipment under non-cancellable operating
  leases that expire through 2013. Future minimum lease payments under operating
  leases due for the fiscal years ending June 30 are as follows (in thousands):

|2006                        |  | $4,154 
|--------------------------- |  | -------
|2007                        |  | 3,554  
|2008                        |  | 1,603  
|2009                        |  | 1,252  
|2010
        and thereafter |  | 4,174  
|Total                       |  | $14,737

Rental
  expense for the years ended June 30, 2005, 2004 and 2003 was approximately $4.4
  million, $4.4 million and $4.0 million, respectively.

The
  Company is subject to legal proceedings and claims which arise in the ordinary
  course of its business. The Company believes that the final disposition of such
  matters will not have a material adverse effect on the financial position or
  results of operations of the Company.

Legal
  matters

ILOG
  is involved in a lawsuit entitled Jensen Denmark A/S and Naicom Technologies
  vs. ILOG S.A. This suit is pending in France. This suit was brought by Jensen
  Denmark and Naicom Technologies against ILOG for breach of contract, bad faith,
  and failure to meet the standard of care owed by a professional consultant.
  ILOG has filed a counterclaim in which it alleges that ILOG is entitled to recover
  from the plaintiffs fees which we incurred but which were not paid, as well
  as additional damages.  ILOG is vigorously prosecuting this litigation.
  This matter is covered by ILOGs insurance, and the insurance company has
  accepted the defense of this matter.

In
  July 2004 we initiated litigation against Aspen Technology, Inc. for breach
  of contract.  This case was settled in December 2004, with Aspen Technologys
  agreement to pay ILOG $845 of the $900 that was in dispute.  All issues
  surrounding this litigation have been resolved. The payment was recorded as
  revenue on December 31, 2004 as it represented the settlement of their contractual
  obligations toward the Company.

To
  the knowledge of the Company, there are no other significant commitments or
  contingencies as of June 30, 2005.

14.

Segment
  and Geographic Information

The
  Company operates in one reportable segmentsoftware components. The information
  presented below by segment, and by region, is the same as those used by the
  Company for its internal reporting purposes, allowing a reliable assessment
  of our risks and returns. The aim is to provide users of the financial statements
  with information regarding the profitability and future prospects of the Companys
  various activities.

The
  accounting policies used to provide the information below are in accordance
  with the Companys accounting policies as described in Note 1 to the Consolidated
  Financial Statements.

-

Segment
  - software components. In this segment, the Company identifies three natures
  of revenue:

·

License
  revenues,

·

Maintenance
  revenues,

·

Professional
  services revenues.



Form
  20-F 2005  ILOG | F-23



---





Although
  cost of revenues can be allocated to each nature of revenue, operating expenses
  are indistinctly incurred for the benefits of all natures of revenue.

|                                   |  | Year
        Ended June 30, |  
|---------------------------------- |  | --------------------------- | -
|                                   |  | 2005                        |  
|Revenues:                          |  |                             |  
|License
        fees               |  | $67,707                     |  
|Maintenance
        fees           |  | 34,158                      |  
|Professional
        services fees |  | 23,438                      |  
|Total
        revenues             |  | $125,303                    |  
|                                   |  |                             |  
|Cost
        of revenues:          |  |                             |  
|License
        fees               |  | $(1,031                     | )
|Maintenance
        fees           |  | (3,870                      | )
|Professional
        services fees |  | (19,782                     | )
|Total
        cost of revenues     |  | $(24,683                    | )



·

Geography
  - Operations outside of France consist principally of sales, marketing, finance,
  customer support, and to a lesser extent, research and development activities.
  Intercompany sales between geographic areas are accounted for at third party
  selling price less a discount and are consistent with the rules and regulations
  of the governing tax authorities. Such transactions are eliminated in the Consolidated
  Financial Statements.

Financial
  information allocation is based on subsidiaries site. Identifiable assets are
  those assets that can be directly associated with a particular geographic area.

The
  following is a summary of operations within geographic area (amounts in thousands):

|                                                          |  | Year
        Ended June 30, 2005
|--------------------------------------------------------- |  | --------------------------------
|                                                          |  | Europe                          
|Total
        revenues                                    |  | $50,958                         
|Income
        from operations                            |  | 5,824                           
|Total
        assets                                      |  | 71,069                          
|Assets
        acquisitions                               |  | 4,078                           
|Amortization
        and depreciation of long term assets |  | $2,058                          



|                                                          |  | Year
        Ended June 30, 2004
|--------------------------------------------------------- |  | --------------------------------
|                                                          |  | Europe                          
|Total
        revenues                                    |  | $39,024                         
|Income
        from operations                            |  | (885)                           
|Total
        assets                                      |  | 59,032                          
|Assets
        acquisitions                               |  | 1,515                           
|Amortization
        and depreciation of long term assets |  | $2,050                          



|                                                          |  | Year
        Ended June 30, 2003
|--------------------------------------------------------- |  | --------------------------------
|                                                          |  | Europe                          
|Total
        revenues                                    |  | $37,784                         
|Income
        from operations                            |  | 2,406                           
|Total
        assets                                      |  | 52,146                          
|Assets
        acquisitions                               |  | 1,838                           
|Amortization
        and depreciation of long term assets |  | $1,626                          







Form
  20-F 2005  ILOG | F-24



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  To Contents







ILOG
  S.A.

SCHEDULE
  II VALUATION AND QUALIFYING ACCOUNTS

(in
  thousands)

|Col.
        A                                                |  | Col.
        B                                          |  | Col.
        C                                        |  | Col.
        D                                    |  | Col.
        E
|------------------------------------------------------------- |  | ------------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------------------- |  | --------------
|                                                              |  |                                                         |  | Additional                                            |  |                                                   |  |               
|Description                                                   |  | Balance
        at
        Beginning of 
        Period |  | Charged
        to
        Costs and
        Expenses |  | Charged
        to
        Other
        Accounts |  | Deductions    
|Year
        ended June 30, 2005                              |  |                                                         |  |                                                       |  |                                                   |  |               
|Reserves
        and allowances deducted from asset accounts: |  |                                                         |  |                                                       |  |                                                   |  |               
|Allowance
        for doubtful accounts                       |  | $584                                                    |  | $365                                                  |  | $                                                |  | $266          
|Valuation
        allowance for deferred tax assets           |  | 33,854                                                  |  | (801)                                                 |  | 743                                               |  |               
|                                                              |  |                                                         |  |                                                       |  |                                                   |  |               
|Year
        ended June 30, 2004                              |  |                                                         |  |                                                       |  |                                                   |  |               
|Reserves
        and allowances deducted from asset accounts: |  |                                                         |  |                                                       |  |                                                   |  |               
|Allowance
        for doubtful accounts                       |  | $659                                                    |  | $(6)                                                  |  | $
                                               |  | $69           
|Valuation
        allowance for deferred tax assets           |  | 32,753                                                  |  | (801)                                                 |  | 1,902                                             |  |               
|                                                              |  |                                                         |  |                                                       |  |                                                   |  |               
|Year
        ended June 30, 2003                              |  |                                                         |  |                                                       |  |                                                   |  |               
|Reserves
        and allowances deducted from asset accounts: |  |                                                         |  |                                                       |  |                                                   |  |               
|Allowance
        for doubtful accounts                       |  | $692                                                    |  | $
        58                                          |  | $                                                |  | $
        91  
|Valuation
        allowance for deferred tax assets           |  | 26,908                                                  |  | 176                                                   |  | 5,669                                             |  |               





Form
  20-F 2005  ILOG | F-25



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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.

|                               | ILOG
        S.A.              
|------------------------------ | -------------------------------
|                               |                                
|Dated:
        October 4, 2005 | /s/
        Jérôme Arnaud      
|                               | Jérôme
        Arnaud          
|                               | Chief
        Financial Officer
|                               |                                
|                               |