{"url_path":"/sec/forty/10-k/2026/item-19","section_key":"item-19","section_title":"Item 19 EXHIBITS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1045986/0001213900-26-055948-index.html","accession_number":"0001213900-26-055948","cik":"0001045986","ticker":"FORTY","issuer_name":"FORMULA SYSTEMS (1985) LTD","edgar_url":"https://www.sec.gov/Archives/edgar/data/1045986/0001213900-26-055948-index.html","primary_entity_key":"0001045986","primary_entity_name":"FORMULA SYSTEMS (1985) LTD"},"word_count":53383,"has_tables":true,"body_markdown":"**ITEM 19. EXHIBITS**\n\n \n\n**EXHIBIT INDEX**\n\n \n\n**Exhibit No.**\n \n \n\n**1.1**\n \nMemorandum of Association (1)\n\n**1.2**\n \n[Amended and Restated Articles of Association, as adopted by Formula\nSystems (1985) Ltd. on January 8, 2012(2)](https://www.sec.gov/Archives/edgar/data/1045986/000114420412002720/v245666_ex99-1.htm)\n\n**2.1**\n \nDepositary Agreement by and among Formula Systems (1985) Ltd., Bank\nof New York Mellon and the holders of the American Depositary Shares of Formula Systems (1985) Ltd. (1)\n\n**2.2**\n \n[Description of Formula Systems (1985) Ltd. American Depositary Shares*](ea028944601ex2-2.htm)\n\n**4.1**\n \n[Form of Letter of Indemnification for officers and directors, adopted\nby Formula Systems (1985) Ltd. on January 8, 2012(4)](https://www.sec.gov/Archives/edgar/data/1045986/000114420412002720/v245666_ex99-2.htm)\n\n**4.2**\n \n[English translation of Formula Systems (1985) Ltd. Employees and Office\nHolders Share Option Plan (2008)(5)](https://www.sec.gov/Archives/edgar/data/1045986/000117891309000941/exhibit_4-3.htm)\n\n**4.3**\n \n[Formula Systems (1985) Ltd. 2011 Share Incentive Plan, as amended(6)](https://www.sec.gov/Archives/edgar/data/1045986/000114420414026077/v375292_ex4-3.htm)\n\n**4.4**\n \n[Formula Systems (1985) Ltd. 2021 Share Incentive Plan(7)](https://www.sec.gov/Archives/edgar/data/1045986/000121390025043461/ea024085001ex4-4_formula.htm)\n\n**4.5**\n \n[Formula Systems (1985) Ltd. Compensation Policy for Office Holders(8)](https://www.sec.gov/Archives/edgar/data/1045986/000121390022078501/ea169849ex99-2_formulasys.htm)\n\n**8.1**\n \n[List of Subsidiaries*](ea028944601ex8-1.htm)\n\n**11.1**\n \n[Insider Trading Policy*](ea028944601ex11-1.htm)\n\n**12.1**\n \n[Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/Rule\n15d-14(a) under the Exchange Act*](ea028944601ex12-1.htm)\n\n**12.2**\n \n[Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/Rule\n15d-14(a) under the Exchange Act*](ea028944601ex12-2.htm)\n\n**13.1**\n \n[Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/Rule\n15d-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*](ea028944601ex13-1.htm)\n\n**13.2**\n \n[Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/Rule\n15d-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*](ea028944601ex13-2.htm)\n\n**15.1**\n \n[Consent of KDA Audit Corporation regarding its report on subsidiary financial statements*](ea028944601ex15-1.htm)\n\n**97.1**\n \n[Clawback Policy(9)](https://www.sec.gov/Archives/edgar/data/1045986/000121390024043687/ea020573901ex97-1_formula.htm)\n\n101.INS\n \nInline XBRL Instance Document\n\n101.SCH\n \nInline XBRL Taxonomy Extension Schema Document.\n\n101.CAL\n \nInline XBRL Taxonomy Extension Calculation Linkbase Document.\n\n101.DEF\n \nInline XBRL Taxonomy Extension Definition Linkbase Document.\n\n101.LAB\n \nInline XBRL Taxonomy Extension Label Linkbase Document.\n\n101.PRE\n \nInline XBRL Taxonomy Extension Presentation Linkbase Document.\n\n104\n \nCover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).\n\n \n\n*Filed herewith.\n\n \n\n(1)Incorporated by reference to the\nregistrant’s Registration Statement on Form F-1 (File No. 333-8858).\n\n \n\n(2)Incorporated by reference to Exhibit 99.1 to the report of foreign\nprivate issuer on Form 6-K furnished by the registrant to the SEC on January 18, 2012.\n\n \n\n(3)Incorporated by reference to Exhibit\n2.2 to the annual report on Form 20-F for the year ended December 31, 2019, filed by the registrant with the SEC on June 29, 2020.\n\n \n\n(4)Incorporated by reference to Exhibit 99.2 to the report of foreign\nprivate issuer on Form 6-K furnished by the registrant to the SEC on January 18, 2012.\n\n \n\n(5)Incorporated by reference to Exhibit\n4.3 to the annual report on Form 20-F for the 2008 fiscal year filed by the registrant with the SEC on April 27, 2009.\n\n \n\n(6)Incorporated by reference to Exhibit\n4.3 to the annual report on Form 20-F for the 2013 fiscal year filed by the registrant with the SEC on April 30, 2014.\n\n \n\n(7)\nIncorporated by reference to Exhibit 4.4 to the annual report on Form 20-F for the 2024 fiscal year filed by the registrant with the SEC on May 15, 2025.\n\n \n \n\n(8)\nIncorporated by reference to Appendix A to the registrant’s proxy statement for its special general meeting of shareholders held on January 12, 2023, attached as Exhibit 99.2 to the report of foreign private issuer on Form 6-K furnished by the registrant to the SEC on December 8, 2022.\n\n \n\n(9)\nIncorporated by reference to Exhibit 97.1 to the annual report on Form 20-F for the 2023 fiscal year filed by the registrant with the SEC on May 15, 2024.\n\n \n\n180\n\n \n\n** **\n\n**SIGNATURES**\n\n \n\nThe registrant hereby certifies\nthat 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\nannual report on its behalf.\n\n \n\nFORMULA SYSTEMS (1985) LTD.\n\n \n\nBy:\n/s/ Guy Bernstein\n \nMay 13, 2026\n\n \nGuy Bernstein\n \nDate\n\n \nChief Executive Officer\n \n \n\n \n\n181\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**CONSOLIDATED FINANCIAL STATEMENTS**\n\n** **\n\n**AS OF DECEMBER 31, 2025**\n\n** **\n\n**U.S. DOLLARS IN THOUSANDS**\n\n** **\n\n**INDEX**\n\n \n\n \n \n**Page**\n\n \n \n \n\n[**Reports of Independent Registered Public Accounting Firm (PCAOB ID 1185)**](#f_001)\n \n**F-2 - F-5**\n\n \n \n \n\n[**Reports of Independent Registered Public Accounting Firm (PCAOB ID 1281)**](#f_002)\n \n**F-6**\n\n \n \n \n\n[**Consolidated Statements of Financial Position**](#f_003)\n \n**F-7 - F-8**\n\n \n \n \n\n[**Consolidated Statements of Profit or Loss**](#f_004)\n \n**F-9**\n\n \n \n \n\n[**Consolidated Statements of Comprehensive Income**](#f_005)\n \n**F-10**\n\n \n \n \n\n[**Consolidated Statements of Changes in Equity**](#f_006)\n \n**F-11 - F-14**\n\n \n \n \n\n[**Consolidated Statements of Cash Flows**](#f_007)\n \n**F-15 - F-18**\n\n \n \n \n\n[**Notes to Consolidated Financial Statements**](#f_008)\n \n**F-19 - F-122**\n\n** **\n\n**- - - - - - - - - - - - - - - - - - -**\n\n \n\nF-1\n\n \n\n \n\n** **\n\n**Report of Independent Registered Public Accounting\nFirm**\n\n \n\nShareholders and Board of Directors\n\nFormula Systems (1985) Ltd.\n\n** **\n\n**Opinion on the Consolidated Financial Statements**\n\n \n\nWe have audited the accompanying consolidated statement of financial\nposition of Formula Systems (1985) Ltd. (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of profit\nor loss, comprehensive income, changes in equity and cash flows for the years then ended, and the related notes (collectively referred\nto as the “consolidated financial statements”). In our opinion, based on our audit and the audit report of Kost Forer Gabbay\n& Kasierer for 2024 the consolidated financial statements present fairly, in all material respects, the financial position of the\nCompany as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity\nwith International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). \n\n \n\nWe also have audited the adjustments to the 2023 financial statements\nto retrospectively apply the change in accounting to present the Sapiens disposal group as a discontinued operation, as discussed in Note\n13 to the financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to\naudit, review, or apply any procedures to the 2023 financial statements of the Company other than with respect to the adjustments and,\naccordingly, we do not express an opinion or any other form of assurance on the 2023 financial statements taken as a whole.\n\n \n\nWe also have audited, in\naccordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal\ncontrol over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework\n(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report, dated May 13, 2026 expressed\nan unqualified opinion thereon.\n\n \n\nWe did not audit the consolidated\nfinancial statements of Sapiens International Corporation N.V., a subsidiary of the Company for the year ended December 31, 2024. The\nconsolidated financial statements of Sapiens International Corporation N.V. were prepared in accordance with accounting principles generally\naccepted in the United States of America and the adjustments to conform those consolidated financial statements to IFRS Accounting Standards\nwere audited by Kost Forer Gabbay & Kasierer , whose report has been furnished to us, and our opinion, insofar as it relates to the\namounts included for Sapiens International Corporation N.V., under IFRS Accounting Standards is based solely on the report of Kost Forer\nGabbay & Kasierer. The consolidated financial statements of Sapiens International Corporation N.V. under IFRS Accounting Standards\nreflect total assets of 23% of the related consolidated total assets as of December 31, 2024, and total revenues constituting 20%, of\nthe consolidated total revenues for the year ended December 31, 2024.\n\n** **\n\n**Basis for Opinion**\n\n** **\n\nThese consolidated financial\nstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s\nconsolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be\nindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of\nthe Securities and Exchange Commission and the PCAOB. \n\n \n\nWe conducted our audit in\naccordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance\nabout whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included\nperforming procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,\nand performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts\nand disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant\nestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that\nour audit and the report of Kost Forer Gabbay & Kasierer for 2024 provide a reasonable basis for our opinion.\n\n \n\nF-2\n\n \n\n  \n\n \n\n \n\n**Critical Audit Matter**\n\n \n\nThe critical audit matter\ncommunicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or\nrequired to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated\nfinancial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical\naudit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating\nthe critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which\nit relates. \n\n** **\n\n**Effective control**\n\n \n\nAs described in Note 2(4) to the consolidated\nfinancial statements, the Company consolidates various investees despite the lack of absolute majority of voting power at the general\nmeetings of the investees. In a situation where the Company holds less than a majority of voting power in a given entity, but that power\nis sufficient to enable the Company to unilaterally direct the relevant activities of such entity, then the control is exercised, and\nthe Company consolidates the entities based on effective control. As disclosed by management, the assessment of whether the Company has\neffective control over an investee involves management’s judgment and analysis and considers factors such as the responsibility\nof the various committees, the composition of the board of directors, the shareholders structure and their level of activity, the attendance\nof the shareholders at the general meetings and the voting patterns.\n\n \n\nAuditing the Company’s\nassessment of effective control was complex and highly judgmental due to the significant judgment of management in determining whether\nthe Company is able to unilaterally direct the relevant activities of the entity and therefor controls the entity. This in turn led to\na high degree of auditor judgment, subjectivity and effort in performing procedures relating to management’s application of consolidation\naccounting, and significant auditor judgment in evaluating the audit evidence obtained relating to the responsibility of the various organs,\nthe composition of the board of directors, the shareholders structure and their level of activity, the attendance of the shareholders\nat the general meetings and the voting patterns.\n\n \n\nThe primary procedures we\nperformed to evaluate the significant judgments made by management to assess effective control, included 1)Obtaining an understanding\nand testing the operating effectiveness of the Company’s internal controls over the judgment and factors used to reach consolidation\nconclusions regarding these investees; 2)verifying and recalculating the procedures performed by the company including the following:\nevaluating the responsibility of the various committees and assessing the composition of the board of directors, the shareholders structure\nand their level of activity, the attendance of the shareholders at the general meetings and the voting patterns; and 3)evaluating the appropriateness\nof the related disclosures included in Note 2(4) to the consolidated financial statements in relation to effective control.\n\n \n\n/s/ Ziv Haft\n\n \n\na BDO member firm\n\nWe have served as the Company’s auditor since\n2024\n\nTel Aviv, Israel\n\nMay 13, 2026\n\n \n\nF-3\n\n \n\n \n\n \n\n \n\n**Report of Independent Registered Public Accounting\nFirm**\n\n \n\nShareholders and Board of Directors\n\nFormula Systems (1985) Ltd.** **\n\n** **\n\n**Opinion on Internal Control over Financial\nReporting**\n\n \n\nWe have audited Formula Systems\n(1985) Ltd. (the “Company’s”) internal control over financial reporting as of December 31, 2025, based on criteria established\nin Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission\n(the “COSO criteria”). In our opinion, based on our audit, the Company\nmaintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.\n\n \n\nWe also have audited, in\naccordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of\nfinancial position of the Company as of December 31, 2025 and 2024, and the related consolidated statements of profit or loss, comprehensive\nincome, changes in equity and cash flows for the years then ended, and the related notes and our report dated May 13, 2026, expressed\nan unqualified opinion thereon based on our audit and the report of Kost Forer Gabbay & Kasierer for 2024.\n\n \n\n**Basis for Opinion**\n\n \n\nThe Company’s management\nis responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal\ncontrol over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.\nOur responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are\na public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.\nfederal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. \n\n \n\nWe conducted our audit of\ninternal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform\nthe audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material\nrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material\nweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our\naudit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. \n\n \n\nF-4\n\n \n\n  \n\n \n\n \n\n**Definition and Limitations of Internal Control\nover Financial Reporting**\n\n \n\nA company’s internal\ncontrol over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting\nand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s\ninternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,\nin reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable\nassurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted\naccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management\nand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,\nuse, or disposition of the company’s assets that could have a material effect on the financial statements.\n\n \n\nBecause of its inherent limitations,\ninternal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness\nto future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of\ncompliance with the policies or procedures may deteriorate.\n\n \n\n/s/ Ziv Haft\n\n \n\na BDO member firm\n\nTel Aviv, Israel\n\nMay 13, 2026\n\n \n\nF-5\n\n \n\n \n\n \n\n**Kost Forer Gabbay & Kasierer**\n\n144 Menachem Begin St.\n\nTel-Aviv 6492102, Israel \n\n \n\nTel: +972-3-6232525\n\nFax: +972-3-5622555\n\ney.com\n\n \n\n**Report of Independent Registered Public Accounting\nFirm**\n\n \n\nTo the Shareholders and the Board of Directors\nof Formula Systems (1985) Ltd.\n\n** **\n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited, before the effects of the adjustments to retrospectively\napply the change in disposal group held for sale and discontinued operations described in Note 13, the accompanying consolidated statements\nof profit or loss, comprehensive income, changes in equity and cash flows of Formula Systems (1985) Ltd. (the Company) for the year ended\nDecember 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).\n\n \n\nIn our opinion, based on\nour audit and the report of other auditors, the consolidated financial statements, before the effects of the adjustments to retrospectively\napply the change in disposal group held for sale and discontinued operations described in Note 13, present fairly, in all material respects,\nthe results of its operations and its cash flows for the year ended December 31, 2023, in conformity with International Financial Reporting\nStandards as issued by the International Accounting Standards Board.\n\n** **\n\nWe did not audit the financial\nstatements of Magic Software Japan K.K., a wholly-owned subsidiary of Magic Software Enterprises Ltd., which reflect revenues constituting\n0.4% for the year ended December 31, 2023, of the related consolidated totals. Those statements were audited by other auditors whose report\nhas been furnished to us, and our opinion, insofar as it relates to the amounts included for Magic Software Japan K.K., is based solely\non the report of the other auditors.\n\n \n\nWe were not engaged to audit,\nreview, or apply any procedures to the adjustments and related required disclosures regarding the effects of the adjustments to retrospectively\napply the change in disposal group held for sale and discontinued operations described in Note 13\n\n** **\n\n**Basis for Opinion**\n\n** **\n\nThese financial statements\nare the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements\nbased on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to\nthe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange\nCommission and the PCAOB.\n\n \n\nWe conducted our audit in\naccordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance\nabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing\nprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures\nthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the\nfinancial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,\nas well as evaluating the overall presentation of the financial statements. We believe that our audit and the report of other auditors\nprovide a reasonable basis for our opinion.\n\n** **\n\n/s/ KOST FORER GABBAY & KASIERER\n\nA Member of EY Global\n\n \n\nWe have served as the Company’s auditor\nfrom 2010 to 2024.\n\nTel-Aviv, Israel\n\nMay 15, 2024\n\n \n\nF-6\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\n**CONSOLIDATED\nSTATEMENTS OF FINANCIAL POSITION**\n\n**U.S. dollars in thousands**\n\n \n\n  \n  \nDecember 31, \n\n  \nNote \n2025  \n2024 \n\nASSETS \n  \n   \n  \n\n  \n  \n   \n  \n\nCURRENT ASSETS: \n  \n    \n   \n\nCash and cash equivalents \n4 \n$1,280,121  \n$507,799 \n\nShort-term deposits \n  \n 372  \n 55,401 \n\nTrade receivables, (net from expected credit losses of $14,942 and $18,106 as of December 31, 2025  and 2024, respectively) \n5 \n 774,471  \n 803,235 \n\nPrepaid expenses and other accounts receivable \n6 \n 80,604  \n 89,882 \n\nInventories \n  \n 30,249  \n 30,728 \n\n  \n  \n    \n   \n\nTotal\ncurrent assets \n  \n$2,165,817  \n$1,487,045 \n\n  \n  \n    \n   \n\nNON-CURRENT ASSETS: \n  \n    \n   \n\nLong-term investments and receivables \n7 \n$50,126  \n$49,928*\n\nFinancial assets measured at fair value through profit or loss \n8 \n 304,549  \n 4,701*\n\nInvestments in companies accounted for at equity \n9 \n 48,908  \n 39,196 \n\nProperty, plant and equipment, net \n10 \n 47,614  \n 51,795 \n\nRight-of-use assets \n19 \n 145,462  \n 156,225 \n\nDeferred taxes \n23f \n 26,915  \n 33,850 \n\nIntangible assets, net \n11 \n 147,621  \n 217,076 \n\nGoodwill \n12 \n 646,243  \n 975,080 \n\n  \n  \n    \n   \n\nTotal non-current\nassets \n  \n 1,417,438  \n 1,527,851 \n\n  \n  \n    \n   \n\nTotal assets \n  \n$3,583,255  \n$3,014,896 \n\n \n\n*)Reclassified\n\n \n\nThe accompanying notes are an integral part of\nthe consolidated financial statements.\n\n \n\nF-7\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\n**CONSOLIDATED\nSTATEMENTS OF FINANCIAL POSITION**\n\n**U.S. dollars in thousands (except share and\nper share data)**\n\n \n\n  \n  \nDecember 31, \n\n  \nNote \n2025  \n2024 \n\nLIABILITIES\nAND EQUITY \n  \n   \n  \n\n  \n  \n   \n  \n\nCURRENT LIABILITIES: \n  \n   \n  \n\nLoans\nfrom banks and others \n14,16 \n$177,899  \n$141,782 \n\nDebentures \n17 \n 76,696  \n 86,782 \n\nCurrent\nmaturities of lease liabilities \n19 \n 42,899  \n 45,240 \n\nTrade\npayables \n  \n 368,319  \n 296,211 \n\nDeferred\nrevenues \n  \n 157,545  \n 173,959 \n\nEmployees\nand payroll accrual \n  \n 235,705  \n 234,845 \n\nOther\naccounts payable \n15 \n 195,817  \n 98,046 \n\nDividend\npayable \n  \n 7,886  \n \n-\n \n\nLiabilities\nin respect of business combinations \n3,8 \n 6,359  \n 9,191 \n\nPut\noptions of non-controlling interests \n2,8 \n 61,206  \n 52,420 \n\n  \n  \n    \n   \n\nTotal\ncurrent liabilities \n  \n$1,330,331  \n$1,138,476 \n\n  \n  \n    \n   \n\nLONG-TERM\nLIABILITIES: \n  \n    \n   \n\nLoans\nfrom banks and others \n16 \n$68,309  \n$62,733 \n\nDebentures \n17 \n 118,656  \n 188,090 \n\nLease\nliabilities \n19 \n 107,805  \n 119,586 \n\nOther\nlong-term liabilities \n  \n 54  \n 11,708 \n\nDeferred\ntaxes \n23f \n 83,426  \n 42,894 \n\nDeferred\nrevenues \n  \n 16,457  \n 12,522 \n\nLiabilities\nin respect of business combinations \n3,8 \n 13,291  \n 8,751 \n\nPut\noptions of non-controlling interests \n2,8 \n 61,577  \n 30,553 \n\nEmployee\nbenefit liabilities \n20 \n 5,547  \n 10,238 \n\n  \n  \n    \n   \n\nTotal\nlong-term liabilities \n  \n$475,122  \n$487,075 \n\n  \n  \n    \n   \n\nCOMMITMENTS\nAND CONTINGENCIES \n21 \n \n \n  \n \n \n \n\n  \n  \n    \n   \n\nEQUITY \n22 \n    \n   \n\nFormula Systems (1985) Ltd. Shareholders’ equity: \n  \n    \n   \n\nShare capital: \n  \n    \n   \n\nOrdinary shares of NIS 1 par value - \n  \n    \n   \n\nAuthorized: 25,000,000 shares as of December 31, 2025 and 2024; Issued: 15,901,287 shares as of December 31, 2025 and 2024; Outstanding: 15,332,667 shares as of\nDecember 31, 2025 and 2024. \n  \n$4,351  \n$4,351 \n\nAdditional\npaid-in capital \n  \n 166,241  \n 152,652 \n\nRetained\nearnings \n  \n 1,105,586  \n 536,014 \n\nAccumulated\nother comprehensive income \n  \n 77,344  \n (13,420)\n\nTreasury\nshares (568,620 shares as of December 31, 2025 and 2024) \n  \n (259) \n (259)\n\n  \n  \n    \n   \n\nTotal\nequity attributable to Formula Systems (1985) Ltd. shareholders \n  \n$1,353,263  \n$679,338 \n\nNon-controlling\ninterests \n24a \n 424,539  \n 710,007 \n\n  \n  \n    \n   \n\nTotal\nequity \n  \n$1,777,802  \n$1,389,345 \n\n  \n  \n    \n   \n\nTotal\nliabilities and equity \n  \n$3,583,255  \n$3,014,896 \n\n \n\nThe accompanying notes are an integral part of\nthe consolidated financial statements.\n\n \n\nF-8\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED\nSTATEMENTS OF PROFIT OR LOSS\n\n \n\n**U.S. dollars in thousands (except share and per share data)**\n\n****\n\n  \n  \nYear ended December 31, \n\n  \n\n**Note**\n \n2025  \n2024  \n2023 \n\nRevenues: \n  \n   \n   \n  \n\nProprietary software products and related services \n  \n$208,694  \n$185,793  \n$178,844 \n\nSoftware services and other \n  \n 2,418,430  \n 2,032,641  \n 1,931,603 \n\n  \n  \n    \n    \n   \n\nTotal revenues \n2,24b \n 2,627,124  \n$2,218,434  \n 2,110,447 \n\n  \n  \n    \n    \n   \n\nCost of revenues: \n  \n    \n    \n   \n\nProprietary software products and related services \n  \n 88,887  \n 76,306  \n 77,617 \n\nSoftware services and other \n  \n 2,019,075  \n 1,696,372  \n 1,611,629 \n\n  \n  \n    \n    \n   \n\nTotal cost of revenues \n  \n 2,107,962  \n 1,772,678  \n 1,689,246 \n\n  \n  \n    \n    \n   \n\nGross profit \n  \n 519,162  \n 445,756  \n 421,201 \n\n  \n  \n    \n    \n   \n\nResearch and development expenses, net \n  \n 20,023  \n 18,077  \n 14,493 \n\nSelling, marketing, general and administrative expenses \n24c \n 311,988  \n 249,716  \n 248,664 \n\nOther income, net \n9 \n 9,226  \n 5,369  \n \n-\n \n\n  \n  \n    \n    \n   \n\nOperating income \n  \n 196,377  \n 183,332  \n 158,044 \n\n  \n  \n    \n    \n   \n\nFinancial expenses \n24d \n 63,587  \n 34,921  \n 35,647 \n\nFinancial income \n24d \n 13,599  \n 10,454  \n 10,857 \n\n  \n  \n    \n    \n   \n\nPre-tax income before share of profits of companies accounted for at equity, net \n  \n 146,389  \n 158,865  \n 133,254 \n\n  \n  \n    \n    \n   \n\nShare of profits of companies accounted for at equity, net \n9 \n 3,654  \n 2,077  \n 773 \n\nTaxes on income \n23h \n 40,459  \n 38,773  \n 31,834 \n\n  \n  \n    \n    \n   \n\nNet income from continued operations \n  \n 109,584  \n 122,169  \n 102,193 \n\nNet income from discontinued operations \n13 \n 559,480  \n 71,621  \n 63,539 \n\n**Net income**** **\n** **** **\n**$****669,064**** **** **\n**$****193,790**** **** **\n**$****165,732**** **\n\n  \n  \n    \n    \n   \n\nNet income (loss) attributable to non-controlling interests: \n  \n    \n    \n   \n\nFrom continued operations \n  \n$73,070  \n$73,626  \n$66,454 \n\nFrom discontinued operations \n  \n (10,485) \n 40,494  \n 35,264 \n\nNet income to Non-controlling interests \n  \n 62,585  \n 114,120  \n 101,718 \n\n  \n  \n    \n    \n   \n\nNet income attributable to Formula’s shareholders: \n  \n    \n    \n   \n\nFrom continued operations \n  \n 36,514  \n 48,543  \n 35,739 \n\nFrom discontinued operations \n  \n 569,965  \n 31,127  \n 28,275 \n\nNet income attributable to Formula’s shareholders \n  \n 606,479  \n 79,670  \n 64,014 \n\n  \n  \n    \n    \n   \n\n**Net income**** **\n** **** **\n**$****669,064**** **** **\n**$****193,790**** **** **\n**$****165,732**** **\n\n  \n  \n    \n    \n   \n\nEarnings per share from continued operations (basic) \n  \n$2.39  \n$3.18  \n$2.34 \n\nEarnings per share from discontinued operations (basic) \n  \n 37.24  \n 2.04  \n 1.85 \n\nEarnings per share (basic) \n24f \n$39.63  \n$5.22  \n$4.19 \n\n  \n  \n    \n    \n   \n\nEarnings per share from continued operations (diluted) \n  \n$2.30  \n$3.10  \n$2.30 \n\nEarnings per share from discontinued operations (diluted) \n  \n 36.09  \n 1.99  \n 1.82 \n\nEarnings per share (diluted) \n24f \n$38.39  \n$5.09  \n$4.12 \n\n  \n  \n    \n    \n   \n\nNumber of shares used in computing: \n  \n    \n    \n   \n\nEarnings per share (basic) \n  \n 15,308,764  \n 15,304,610  \n 15,301,392 \n\nEarnings per share (diluted) \n  \n 15,786,901  \n 15,636,664  \n 15,498,101 \n\n \n\nThe accompanying notes are an integral part of\nthe consolidated financial statements.\n\n \n\nF-9\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED\nSTATEMENTS OF COMPREHENSIVE INCOME\n\n \n\n**U.S.\ndollars in thousands**\n\n****\n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nNet income \n$669,064  \n$193,790  \n$165,732 \n\n  \n    \n    \n   \n\nOther comprehensive income (loss) net of tax effect: \n    \n    \n   \n\n  \n    \n    \n   \n\nAmounts that will not be reclassified subsequently to profit or loss: \n    \n    \n   \n\nActuarial gain from defined benefit plans \n 1,450  \n 869  \n 1,993 \n\nGain (loss) from investments in equity instruments measured at fair value through other comprehensive income \n (473) \n 6,272  \n 9,996 \n\nShare of other comprehensive income (loss) of companies accounted for at equity \n 101  \n (3,316) \n (575)\n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n \n170,212\n  \n (5,469) \n (30,526)\n\n  \n    \n    \n   \n\nAmounts that will be or that have been reclassified to profit or loss when specific conditions are met: \n    \n    \n   \n\n  \n    \n    \n   \n\nForeign exchange differences on\ntranslation of foreign operations from discontinued operations \n (27,362) \n (6,210) \n 18,969 \n\nForeign exchange differences on translation of foreign operations \n (37,792) \n (488) \n 7,240 \n\n  \n    \n    \n   \n\nTotal other comprehensive income (loss), net of tax \n 106,136  \n (8,342) \n 7,097 \n\n  \n    \n    \n   \n\nTotal Comprehensive income \n$775,200  \n$185,448  \n$172,829 \n\n  \n    \n    \n   \n\nTotal comprehensive income (loss) attributable to non-controlling: interests \n    \n    \n   \n\nFrom continued operations \n 118,499  \n 111,091  \n 90,075 \n\nFrom discontinued operations \n (4,173) \n (3,361) \n 11,379 \n\n  \n    \n    \n   \n\nTotal comprehensive income to non-controlling interests \n$114,326  \n$107,730  \n$101,454 \n\n  \n    \n    \n   \n\nTotal comprehensive income attributable to Formula’s shareholders: \n    \n    \n   \n\nFrom continued operations \n 684,063  \n 80,567  \n 63,785 \n\nFrom discontinued operations \n (23,189) \n (2,849) \n 7,590 \n\n  \n    \n    \n   \n\nTotal comprehensive income  attributable to Formula’s shareholders \n$\n660,874\n  \n$77,718  \n$71,375 \n\n  \n    \n    \n   \n\nTotal Comprehensive income \n$775,200  \n$185,448  \n$172,829 \n\n** **\n\nThe accompanying notes are an integral part of\nthe consolidated financial statements.\n\n \n\nF-10\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY\n\n \n\n**U.S. dollars in thousands (except share and per share data)**\n\n \n\n  \n   \n   \n   \nAccumulated  \n   \n   \n  \n\n  \n   \nAdditional  \n   \nOther  \n   \nNon-  \n  \n\n  \nShare Capital  \npaid-in  \nRetained  \ncomprehensive  \nTreasury  \ncontrolling  \nTotal \n\n  \nNumber  \nAmount  \ncapital  \nearnings  \nincome (loss)  \nshares (cost)  \ninterests  \nEquity \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2025 \n 15,332,667  \n$4,351  \n$152,652  \n$536,014  \n$**(13,420****)** \n$(259) \n$710,007  \n$1,389,345 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNet income \n -  \n \n-\n  \n \n-\n  \n 606,479  \n \n-\n  \n \n-\n  \n 62,585  \n 669,064 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nForeign currency translation \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 77,237  \n \n-\n  \n 55,183  \n 132,420 \n\nForeign currency translation from discontinued operations \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (23,189) \n \n \n  \n (4,173) \n (27,362)\n\nActuarial gain from defined benefit plans \n -  \n \n-\n  \n \n-\n  \n 719  \n \n-\n  \n \n-\n  \n 731  \n 1,450 \n\nShare of other comprehensive loss of companies accounted for at equity  \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 101  \n \n-\n  \n \n-\n  \n 101 \n\nLoss from investments in equity instruments measured at fair value through other comprehensive income (Note 8) \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (473) \n \n-\n  \n \n-\n  \n (473)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal other comprehensive income \n -  \n \n-\n  \n \n-\n  \n 719  \n \n53,676\n  \n \n-\n  \n \n51**,**741\n  \n 106,136 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal comprehensive income \n -  \n \n-\n  \n \n-\n  \n 607,198  \n 53,676  \n \n-\n  \n \n114,326\n  \n 775,200 \n\nCost of share-based payment (Note 20) \n -  \n \n-\n  \n 7,286  \n \n-\n  \n \n-\n  \n \n-\n  \n 23,861  \n 31,147 \n\nDividend to Formula’s shareholders \n -  \n \n-\n  \n \n-\n  \n (36,539) \n \n-\n  \n \n-\n  \n \n-\n  \n (36,539)\n\nDividend equivalents on RSUs to Formula’s shareholders \n -  \n \n-\n  \n \n-\n  \n (1,087) \n \n-\n  \n \n-\n  \n \n-\n  \n (1,087)\n\nDividend to non-controlling interests in subsidiaries \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n (89,222) \n (89,222)\n\nTransactions with non-controlling interests due to holding\nchanges, including exercise of employees’ stock options \n -  \n \n-\n  \n 41,831  \n \n-\n  \n \n-\n  \n \n-\n  \n 41,975  \n 83,806 \n\nAcquisition of non-controlling interests \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n (8,858) \n (8,858)\n\nSettlement and expiration of put options over non-controlling interests \n -  \n \n-\n  \n (35,528) \n \n-\n  \n \n-\n  \n \n-\n  \n (10,019) \n \n(45**,**547\n)\n\nLoss of control and deconsolidation of a subsidiary \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 37,088  \n \n-\n  \n (361,247) \n (324,159)\n\nOther adjustments \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n 183  \n 183 \n\nNon-controlling interests arising from initially consolidated companies \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n 3,533  \n 3,533 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2025 \n 15,332,667  \n$4,351  \n$166,241  \n$1,105,586  \n$\n77,**344**\n  \n$(259) \n$\n424,539\n  \n$\n1,777,**802**\n \n\n \n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n \n\nF-11\n\n \n\n  \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY\n\n \n\n**U.S. dollars in thousands (except share and per share data)**\n\n \n\n  \n   \n   \n   \nAccumulated  \n   \n   \n  \n\n  \n   \nAdditional  \n   \nOther  \n   \nNon-  \n  \n\n  \nShare Capital  \npaid-in  \nRetained  \ncomprehensive  \nTreasury  \ncontrolling  \nTotal \n\n  \nNumber  \nAmount  \ncapital  \nearnings  \nincome (loss)  \nshares (cost)  \ninterests  \nEquity \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2024 \n 15,332,667  \n$4,351  \n$157,482  \n$475,219  \n$**(11,031****)** \n$(259) \n$682,423  \n$1,308,185 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNet income \n -  \n \n-\n  \n \n-\n  \n 79,670  \n \n-\n  \n \n-\n  \n 114,120  \n 193,790 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nForeign currency translation \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (2,496) \n \n-\n  \n (3,461) \n (5,957)\n\nForeign currency translation from discontinued operations \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (2,849) \n \n-\n  \n (3,361) \n (6,210)\n\nActuarial gain from defined benefit plans \n -  \n \n-\n  \n \n-\n  \n 437  \n \n-\n  \n \n-\n  \n 432  \n 869 \n\nShare of other comprehensive loss of companies accounted for at equity  \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (3,316) \n \n-\n  \n \n-\n  \n (3,316)\n\nGain from investments in equity instruments measured at fair value through other comprehensive income (Note 8) \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 6,272  \n \n-\n  \n \n-\n  \n 6,272 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal other comprehensive income (loss) \n -  \n \n-\n  \n \n-\n  \n 437  \n (2,389) \n \n-\n  \n (6,390) \n (8,342)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal comprehensive income \n -  \n \n-\n  \n \n-\n  \n 80,107  \n (2,389) \n \n-\n  \n 107,730  \n 185,448 \n\nCost of share-based payment (Note 20) \n -  \n \n-\n  \n 7,078  \n \n-\n  \n \n-\n  \n \n-\n  \n 9,086  \n 16,164 \n\nDividend to Formula’s shareholders \n -  \n \n-\n  \n \n-\n  \n (19,312) \n -  \n \n-\n  \n \n-\n  \n (19,312)\n\nDividend to non-controlling interests in subsidiaries \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n (81,858) \n (81,858)\n\nTransactions with non-controlling interests due to holding\nchanges, including exercise of employees’ stock options \n -  \n \n-\n  \n (3,242) \n \n-\n  \n \n-\n  \n \n-\n  \n (8,812) \n (12,054)\n\nSettlement and expiration of put options over non-controlling interests \n -  \n \n-\n  \n (8,666) \n \n-\n  \n \n-\n  \n \n-\n  \n (11,116) \n (19,782)\n\nNon-controlling interests arising from initially consolidated companies \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n 12,554  \n 12,554 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2024 \n 15,332,667  \n$4,351  \n$152,652  \n$536,014  \n$**(13,420****)** \n$(259) \n$710,007  \n$1,389,345 \n\n \n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n \n\nF-12\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY\n\n \n\n**U.S. dollars in thousands (except share and per share data)**\n\n \n\n  \n   \n   \n   \nAccumulated  \n   \n   \n  \n\n  \n   \nAdditional  \n   \nOther  \n   \nNon-  \n  \n\n  \nShare Capital  \npaid-in  \nRetained  \ncomprehensive  \nTreasury  \ncontrolling  \nTotal \n\n  \nNumber  \nAmount  \ncapital  \nearnings  \nincome (loss)  \nshares (cost)  \ninterests  \nEquity \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2023 \n 15,317,667  \n$4,347  \n$145,369  \n$419,448  \n$(17,030) \n$(259) \n$625,047  \n$1,176,922 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNet income \n -  \n \n-\n  \n \n-\n  \n 64,014  \n \n-\n  \n \n-\n  \n 101,718  \n 165,732 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nForeign currency translation \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (11,012) \n \n-\n  \n (12,274) \n (23,286)\n\nForeign currency translation from discontinued operations \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 7,590  \n \n-\n  \n 11,379  \n 18,969 \n\nActuarial gain from defined benefit plans \n -  \n \n-\n  \n \n-\n  \n 1,362  \n \n-\n  \n \n-\n  \n 631  \n 1,993 \n\nShare of other comprehensive loss of companies accounted for at equity  \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n (575) \n \n-\n  \n \n-\n  \n (575)\n\nGain from investments in equity instruments measured at fair value through other comprehensive income (Note 8) \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n 9,996  \n \n-\n  \n \n-\n  \n 9,996 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal other comprehensive income (loss) \n -  \n \n-\n  \n \n-\n  \n 1,362  \n 5,999  \n \n-\n  \n (264) \n 7,097 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nTotal comprehensive income \n -  \n \n-\n  \n \n-\n  \n 65,376  \n 5,999  \n \n-\n  \n 101,454  \n 172,829 \n\nIssuance of restricted shares to employees \n 15,000  \n 4  \n (4) \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nCost of share-based payment (Note 20) \n -  \n \n-\n  \n 7,269  \n \n-\n  \n \n-\n  \n \n-\n  \n 11,415  \n 18,684 \n\nDividend to Formula’s shareholders \n -  \n \n-\n  \n \n-\n  \n (9,605) \n \n-\n  \n \n-\n  \n \n-\n  \n (9,605)\n\nDividend to non-controlling interests in subsidiaries \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n (62,487) \n (62,487)\n\nTransactions with non-controlling interests due to holding\nchanges, including exercise of employees’ stock options \n -  \n \n-\n  \n 5,803  \n \n-\n  \n \n-\n  \n \n-\n  \n 643  \n 6,446 \n\nAcquisition of non-controlling interests \n -  \n \n-\n  \n (923) \n \n-\n  \n \n-\n  \n \n-\n  \n (4,404) \n (5,327)\n\nSettlement and expiration of put options over non-controlling interests \n -  \n \n-\n  \n (32) \n \n-\n  \n \n-\n  \n \n-\n  \n (1,029) \n (1,061)\n\nNon-controlling interests arising from initially consolidated companies \n -  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n 11,784  \n 11,784 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2023 \n 15,332,667  \n$4,351  \n$157,482  \n$475,219  \n$**(11,031****)** \n$(259) \n$682,423  \n$1,308,185 \n\n \n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n \n\nF-13\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY\n\n \n\n**U.S. dollars in thousands (except share and per share data)**\n\n** **\n\n**Accumulated other comprehensive income (loss):**\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n**2023** \n\n  \n   \n   \n  \n\nAdjustments arising from translating financial statements from functional\ncurrency to presentation currency \n$(3,941) \n$(101,995) \n$(99,613)\n\nForeign currency translation reserve arising from translating financial\nstatements of foreign operations \n 79,222  \n 100,039  \n 100,153 \n\nForeign exchange differences on translation of foreign operations from\ndiscontinued operations \n \n-\n  \n (13,899) \n (11,050)\n\nReserve from financial assets measured at fair value through other comprehensive income \n 10,942  \n 11,415  \n 5,143 \n\nShare of other comprehensive loss of companies accounted for at equity \n (8,879) \n (8,980) \n (5,664)\n\n  \n    \n    \n   \n\nAccumulated other comprehensive income (loss) \n$77,344  \n$(13,420) \n$(11,031)\n\n \n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n \n\nF-14\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\n**CONSOLIDATED\nSTATEMENTS OF CASH FLOWS**\n\n**U.S. dollars in thousands**\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nCash flows from operating activities: \n   \n   \n  \n\n  \n   \n   \n  \n\nNet income \n$669,064  \n$193,790  \n$165,732 \n\nAdjustments to reconcile net income to net cash provided\nby operating activities: \n    \n    \n   \n\nShare of profits of companies accounted for at equity, net \n (3,654) \n (2,077) \n (773)\n\nDepreciation and amortization \n 152,514  \n 115,495  \n 121,832 \n\nChanges in value of debentures, net \n 315  \n 437  \n 1,490 \n\nIncrease in employee benefit liabilities \n 4,192  \n 699  \n 2,707 \n\nLoss on disposal of subsidiaries, net of tax (Appendix D) \n 1,326  \n \n-\n  \n \n-\n \n\nGain on disposal of discontinued operations, net of tax (Appendix D) \n (578,314) \n \n-\n  \n \n-\n \n\nCapital gain from Initial public offering of TSG \n \n-\n  \n (4,141) \n \n-\n \n\nGain from secondary equity issuance  of TSG \n (9,220) \n \n-\n  \n \n-\n \n\nLoss (gain) from sale of property, plants and equipment \n (65) \n 589  \n 66 \n\nShare-based payment expenses \n 31,147  \n 16,164  \n 18,622 \n\nNet finance expenses (income) related to bank loans and deposits \n 8,289  \n (1,462) \n 833 \n\nChanges in deferred taxes, net \n (8,264) \n (12,407) \n (8,344)\n\nCash paid in respect of acquisitions of activities \n \n-\n  \n (922) \n (6,572)\n\nChange in liability in respect of business combinations \n 2,574  \n (1,731) \n (2,062)\n\nChange in fair value of financial assets measured at fair value through profit or loss \n \n-\n  \n \n-\n  \n 5 \n\nAmortization of premium and accrued interest on debt instruments at fair value through other comprehensive income \n 101  \n (27) \n (114)\n\nGain from revaluation of dividend preference derivative in TSG \n \n-\n  \n (659) \n (85)\n\nEffect of exchange rate on cash and cash equivalents held in currencies other than the functional currency \n 6,765  \n (350) \n 991 \n\n  \n    \n    \n   \n\nWorking capital adjustments: \n    \n    \n   \n\nDecrease (increase) in inventories \n 5,103  \n 11,721  \n (3,382)\n\nDecrease (increase) in trade receivables \n 51,940  \n (81,211) \n 6,562 \n\nDecrease in other current and long-term accounts receivable \n (15,536) \n (1,522) \n (5,833)\n\nIncrease in trade payables \n 24,242  \n 40,032  \n 18,718 \n\nIncrease in other accounts payable and employees and\npayroll accrual \n 47,807  \n 44,662  \n (25,117)\n\nIncrease (decrease) in deferred revenues \n (8,287) \n 7,370  \n 9,692 \n\n  \n    \n    \n   \n\nNet cash provided by operating activities \n$382,039  \n$324,450  \n$294,968 \n\n \n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n** **\n\nF-15\n\n \n\n \n\nFORMULA SYSTEMS (1985) LTD.\n\n \n\nCONSOLIDATED\nSTATEMENTS OF CASH FLOWS\n\n \n\n**U.S. dollars in thousands**\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\nCash flows from investing activities: \n   \n   \n  \n\nPayments for business acquisitions, net of cash acquired (Appendix C) \n$(135,686) \n$(50,198) \n$(36,966)\n\nProceeds from disposal of subsidiary discontinued operation (Appendix D) \n 676,171  \n \n-\n  \n \n-\n \n\nProceeds from sale of a subsidiary related to non-controlling interests (Appendix D) \n (994) \n \n-\n  \n \n-\n \n\nCash paid in conjunction with deferred payments and contingent liabilities related to business combinations \n (3,745) \n (8,355) \n (11,874)\n\nLoan extended to related party and others \n \n-\n  \n \n-\n  \n (7,001)\n\nPurchase of intangible assets \n (1,586) \n (908) \n (763)\n\nPurchase of investment measured using the equity method \n \n-\n  \n (15,521) \n \n-\n \n\nPurchase of other investments \n \n-\n  \n \n-\n  \n (498)\n\nPurchase of financial assets measured at fair value through other comprehensive income \n (380) \n 585  \n (1,243)\n\nPurchase of property and equipment \n (16,181) \n (16,441) \n (16,683)\n\nProceeds from maturity and sale of investments in instruments at fair value through other comprehensive income or loss, net \n 3,712  \n 5,194  \n 699 \n\nProceeds from sale of property and equipment \n 1,061  \n 783  \n 1,043 \n\nDividend from companies accounted for at equity \n 6,015  \n 162  \n 68 \n\nPayment to former shareholders of consolidated company \n (6,103) \n (6,139) \n \n-\n \n\nChange in short-term and long-term deposits \n 55,591  \n 24,262  \n (51,467)\n\nCapitalization of software development and other costs \n (10,121) \n (11,607) \n (14,552)\n\nLoan to an associate company \n (165) \n \n-\n  \n \n-\n \n\nPayment of liability related to the disposal of a subsidiary \n (522) \n \n-\n  \n \n-\n \n\nDeferred payment for acquisition of subsidiaries consolidated in prior periods \n (3,058) \n \n-\n  \n \n-\n \n\n  \n    \n    \n   \n\nNet cash provided (used) in investing activities\n \n$564,009  \n$(78,183) \n$(139,237)\n\n  \n    \n    \n   \n\nCash flows from financing activities: \n    \n    \n   \n\nExercise of employees’ stock options in subsidiaries \n$\n-\n  \n$98* \n$4,831 \n\nCash paid in conjunction with acquisitions of activities \n (674) \n (2,406) \n (6,718)\n\nDividend paid to non-controlling interests \n (99,500) \n (66,299) \n (62,487)\n\nDividend to Formula’s shareholders \n (28,656) \n (18,807) \n (9,927)\n\nShort-term bank credit, net \n (3,764) \n (4,647) \n (9,527)\n\nRepayment of long-term loans from banks and others \n (101,706) \n (93,320) \n (82,874)\n\nReceipt of long-term loans from banks and others \n 100,212  \n 63,257  \n 55,568 \n\nReceipt of short-term loans from banks and others \n 11,588  \n \n-\n  \n \n-\n \n\nProceeds from issuance of debentures, net \n \n-\n  \n 67,082  \n \n-\n \n\nProceeds from issuance of ordinary shares by subsidiaries \n 83,659  \n \n-\n  \n \n-\n \n\nRepayment of long-term liabilities to IIA \n \n-\n  \n (2,801) \n (394)\n\nRepayment of debentures \n (107,251) \n (69,290) \n (60,449)\n\nPurchase of non-controlling interests \n (468) \n (4,882) \n (2,661)\n\nRepayment of lease liabilities \n (54,389) \n (50,088) \n (55,064)\n\nCash paid due to exercise of put option by non-controlling interests \n (14,351) \n (1,805) \n (13,204)\n\nPayment to non-controlling interests due to put option \n (8,169) \n (1,054) \n (271)\n\n  \n    \n    \n   \n\nNet cash used by financing activities \n$(223,469) \n$(184,962) \n$(243,177)\n\n  \n    \n    \n   \n\nEffect of exchange rate changes on cash and cash equivalents \n 49,743  \n (5,452) \n (4,950)\n\n  \n    \n    \n   \n\nIncrease (decrease) in cash and cash equivalents \n 772,322  \n 55,853  \n (92,396)\n\nCash and cash equivalents at the beginning of the year \n 507,799  \n 451,946  \n 544,342 \n\nCash and cash equivalents at the end of the year \n$1,280,121  \n$507,799  \n$451,946 \n\n \n\nThe accompanying notes are an integral part of\nthe consolidated financial statements.\n\n** **\n\n***)****Reclassified**\n\n** **\n\nF-16\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED\nSTATEMENTS OF CASH FLOWS\n\n \n\n**U.S. dollars in thousands**\n\n \n\nA.Supplemental cash flow information:\n\n  \n\n \n  \nYear ended, December 31, \n\n \n  \n2025  \n2024  \n2023 \n\n \n  \n   \n   \n  \n\n \nCash paid (received) in respect of: \n   \n   \n  \n\n \nInterest paid \n$24,579  \n$25,850  \n$26,140 \n\n \n  \n    \n    \n   \n\n \nInterest received \n$8,996  \n$15,598  \n$7,290 \n\n \n  \n    \n    \n   \n\n \nTaxes paid, net \n$72,016  \n$63,080  \n$76,694 \n\n \n\nB.Non-cash activities:\n\n \n\n \nPurchase of property and equipment \n$102  \n$123  \n$86 \n\n \nIntangible assets and goodwill incurred but unpaid at year end \n \n-\n  \n 98  \n 382 \n\n \nContingent acquisition consideration \n \n-\n  \n \n-\n  \n (124)\n\n \nDividend payable to Formula’s shareholders \n$8,970  \n \n-\n  \n \n-\n \n\n \nDividend payable to non-controlling interests \n$3  \n 15,559  \n \n-\n \n\n \nRight-of-use asset recognized with corresponding lease liability \n$36,444  \n$82,976  \n$45,360 \n\n \n\nC.Acquisition of newly-consolidated subsidiaries and activities,\nnet of cash acquired:\n\n \n\n \n  \nYear ended, December 31, \n\n \n  \n2025  \n2024  \n2023 \n\n \n  \n   \n   \n  \n\n \nAssets and liabilities of subsidiaries consolidated as of acquisition date: \n   \n   \n  \n\n \nWorking capital (excluding  cash and cash equivalents) \n$(17,013) \n$(3,078) \n$(10,355)\n\n \nInventories \n (436) \n (256) \n (4,343)\n\n \nProperty and equipment \n (1,823) \n (1,435) \n (242)\n\n \nGoodwill and intangible assets \n (154,164) \n (94,359) \n (44,728)\n\n \nRight-of-use assets \n (575) \n \n-\n  \n (93)\n\n \nOther long-term assets \n (2,049) \n (3,141) \n (2,439)\n\n \nLiabilities to banks and others \n \n-\n  \n 1,001  \n 7,101 \n\n \nLong-term liabilities \n 8,790  \n 422  \n 282 \n\n \nLease liabilities \n 512  \n \n-\n  \n 93 \n\n \nDeferred tax liability, net \n 10,718  \n 9,955  \n 2,799 \n\n \nDividend payable \n 1,300  \n \n-\n  \n \n-\n \n\n \nLiability to formerly shareholders \n \n-\n  \n 7,834  \n 1,244 \n\n \nDeferred payments and contingent consideration \n 5,392  \n 20,305  \n 1,931 \n\n \nRedeemable non-controlling interests at acquisition date \n 10,129  \n \n-\n  \n \n-\n \n\n \nNon-controlling interests at acquisition date \n 3,533  \n 12,554  \n 11,784 \n\n \n  \n    \n    \n   \n\n \nTotal \n (135,686) \n$(50,198) \n$(36,966)\n\n** **\n\nThe accompanying notes are\nan integral part of the consolidated financial statements.\n\n** **\n\nF-17\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nCONSOLIDATED\nSTATEMENTS OF CASH FLOWS\n\n \n\n**U.S. dollars in thousands**\n\n** **\n\nD.Proceeds from sale of investments in previously consolidated\nsubsidiaries:\n\n \n\n** **\n\n \n  \nYear ended December 31, \n\n \n  \n2025  \n2024  \n2023 \n\n \n  \n   \n   \n  \n\n \nThe subsidiaries’ assets and liabilities at date of sale: \n   \n   \n  \n\n \nWorking capital (excluding cash and cash equivalents) \n$160,846  \n$\n     -\n  \n$\n    -\n \n\n \nProperty and equipment \n 9,365  \n \n-\n  \n \n-\n \n\n \nFinancial assets measured at fair value through profit or loss \n (300,000) \n    \n   \n\n \nGoodwill and intangible assets \n 575,026  \n \n-\n  \n \n-\n \n\n \nDeferred tax \n 10,067  \n \n-\n  \n \n-\n \n\n \nRight-of-use assets \n 17,610  \n \n-\n  \n \n-\n \n\n \nOther long-term assets \n 89  \n \n-\n  \n \n-\n \n\n \nLiabilities to banks and others \n (860) \n    \n   \n\n \nLong-term liabilities \n (63) \n \n-\n  \n \n-\n \n\n \nLease liabilities \n (20,850) \n \n-\n  \n \n-\n \n\n \nDeferred tax liability, net \n (14,229) \n \n-\n  \n \n-\n \n\n \nDividend payable \n (143) \n \n-\n  \n \n-\n \n\n \nLiability in connection with the sale of a subsidiary for consideration in the form of non-controlling interests \n 386  \n \n-\n  \n \n-\n \n\n \nCapital reserve from transactions with non-controlling interests \n (1,492) \n \n-\n  \n \n-\n \n\n \n Reclassification of translation reserve to profit or loss upon disposal \n 37,088  \n \n-\n  \n \n-\n \n\n \nNon-controlling interests at acquisition date \n (361,247) \n \n-\n  \n \n-\n \n\n \nRedeemable non-controlling interests at acquisition date \n (13,404) \n \n-\n  \n \n-\n \n\n \nGain on disposal and deconsolidation of a subsidiary \n 576,988  \n    \n   \n\n \n  \n    \n    \n   \n\n \n  \n$675,177  \n$\n-\n  \n$\n-\n \n\n** **\n\nThe accompanying notes are an\nintegral part of the consolidated financial statements.\n\n \n\nF-18\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\nNOTE 1:- GENERAL\n\n \n\na.General:\n\n \n\nFormula Systems (1985)\nLtd. (“Formula” or the “Company”) was incorporated in Israel and began its business operations in 1985. Since\n1991, Formula’s ordinary shares, par value NIS 1 per share, have been traded on the Tel-Aviv Stock Exchange (“TASE”),\nand, in 1997, began trading through American Depositary Shares (“ADSs”) under the symbol “FORTY” on the Nasdaq\nGlobal Market in the United States until January 3, 2011, at which date the listing of Formula’s ADSs was transferred to the Nasdaq\nGlobal Select Market (“Nasdaq”). Each ADS represents one ordinary share of Formula. The Company is considered an Israeli resident.\nThe controlling shareholder of the Company is Asseco Poland S.A. (“Asseco”), a Polish public company, whose shares are traded\non the Warsaw Stock Exchange, that offers comprehensive, proprietary IT solutions for all sectors of the economy.\n\n \n\nb.Formula is a global information technology group providing software services, proprietary and non-proprietary\nsoftware solutions, software product marketing and support, computer infrastructure and integration solutions and training, integration\nand digital advertising solutions (the “Group”). The Group manages and operates its businesses through nine directly held\nsubsidiaries: Matrix IT Ltd. (“Matrix”), Magic Software Enterprises Ltd. (“Magic Software”), Zap Group Ltd. (“ZAP\nGroup”), Insync Staffing, Inc. (“Insync”), Michpal Technologies Ltd. (“Michpal”), Ofek Aerial Photography\nLtd. (“Ofek”), Shamrad Electronic (1997) Ltd. (“Shamrad”), Hashahar Telecom and Electricity Ltd. (“Hashahar”)\nand Formula Infrastructure Ltd.; one jointly controlled entity -TSG IT Advanced Systems Ltd. (“TSG”); one additional associate\nand one entity measured at fair value through profit or loss - SI Swan UK Topco Limited (“Topco”) (Sapiens’ ultimate\nparent company).\n\n \n\nc.Business environment:\n\n \n\nThe business environment\nin which the Group operates is directly affected by global and local trends and events, the main ones of which are detailed below:\n\n \n\n1.The impact of Inflation and interest rates increases\n\n \n\nFollowing global\nmacroeconomic developments during 2022, inflation rates increased both in Israel and globally. As part of the measures taken to curb inflation,\ncentral banks worldwide, including the Bank of Israel, began increasing interest rates. On November 24, 2025, the Bank of Israel reduced\nthe interest rate by 0.25%, for the first time in two years. In the Group’s assessment, the impact of inflation on its operating\nresults is not material, inter alia due to the fact that the Group’s financial debt is not linked to the Consumer Price Index. However,\nan increase in interest rates, should it occur, may adversely affect the Group’s operating results through higher financing costs\non variable interest rate borrowings (commercial paper and short-term bank loans), as well as on new fixed-rate borrowings that may replace\nmaturing loans.\n\n \n\n2.The geopolitical and security situation\n\n \n\nOn October 7, 2023,\nthe “Iron Swords” War broke out. The effects of the war were reflected, inter alia, in attacks on civilian populations, extensive\nreserve mobilization and its impact on the labor market, as well as effects on the Israeli home front, including the evacuation of significant\nparts of the civilian population to alternative locations. These developments affected overall economic activity and the domestic economy\nin particular, including the State’s credit rating (with three major\ninternational rating agencies announcing during 2024 a downgrade of Israel’s sovereign credit rating).\n\n \n\nF-19\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 1:- GENERAL (Cont.)**\n\n** **\n\nc.Business environment: (Cont.)\n\n \n\n2.The geopolitical and security situation (Cont.)\n\n \n\nIn addition, alongside\nthe continuation of the fighting in Gaza, on June 13, 2025, Israel launched a large-scale pre-emptive strike against Iran under “Operation\nWith the Strength of a Lion.” This operation resulted in broad restrictions on economic activity in Israel due to the Iranian missile\nthreat and damage to the Israeli home front. Approximately two weeks later, a ceasefire was declared, leading to the cessation of hostilities.\n\n \n\nIn October 2025,\nan agreement was signed under the mediation of the United States and other countries, based on the 21-point plan of the President of the\nUnited States, which, in its first phase, led to the release of all living hostages and most of the deceased hostages, alongside principled\nunderstandings regarding a ceasefire in Gaza and the implementation of humanitarian arrangements. Concurrently with the said ceasefire,\nattacks on Israel from Yemen ceased.\n\n \n\nFollowing the end\nof the reporting period, on February 28, 2026, “Operation Roar of the Lion” commenced, a joint military operation by the United\nStates and Israel against Iran. Iran responded by launching hundreds of ballistic missiles and UAVs toward Israel and Gulf states, alongside\nthe opening of an additional front by Hezbollah from Lebanon. The strikes resulted in civilian casualties and injuries in Israel and caused\nextensive property damage. As a result, a special state of emergency was declared on the Israeli home front, including closure of Israeli\nairspace, restrictions on public gatherings, temporary closures and/or reduced operating hours of various businesses, and mass reserve\nmobilization, all of which led to a partial reduction in economic activity.\n\n \n\nThese events, by\ntheir nature, have significant security-related implications for the domestic economy and the State budget, including potential impacts\non the publication of tenders for software services in the Group’s areas of activity, as well as on the budgets of various business\nentities operating in the Israeli economy, which may reduce their demand for the Group’s services and solutions due to prevailing\nuncertainty.\n\n \n\nIn the Group’s\nassessment, should “Operation Roar of the Lion” continue for an extended period and/or escalate, its implications may have\na significant adverse effect on the Israeli economy, including on the Company. Due to the inherent uncertainty associated with such security\ndevelopments, there is no certainty regarding the absence of a material impact in the future. However, as of the date of approval of the\nfinancial statements, the Group does not identify a material impact on its level of activity, including demand for its services and solutions.\n\n \n\nF-20\n\n \n\n \n\n**FORMULA SYSTEMS\n(1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S. dollars in thousands, except share and\nper share data**\n\n \n\n**NOTE 1:- GENERAL (Cont.)**\n\n \n\nd.Other material events:\n\n \n\n1.On August 13, 2025, Sapiens International Corporation N.V. (hereafter, “Sapiens”), a subsidiary of the Company at that time, announced that it had entered into a definitive agreement to be acquired by Advent, a leading global private equity investor, for $43.50 per common share in an all-cash transaction. Under the terms of the agreement, the Company will retain a significant minority ownership interest in Sapiens, which, under the new structure, represents approximately an 18.68% ownership stake, held through SI Swan UK Topco Limited. On November 19, 2025, Sapiens held an extraordinary general meeting of shareholders, at which all proposals relating to the definitive agreement were approved. The transaction was completed on December 17, 2025. Following the completion of the transaction, the Company ceased to have a controlling interest in Sapiens and, accordingly, presented the results of Sapiens separately as discontinued operations in its consolidated financial statements for the full year and prior periods, in accordance with IFRS 5. For further information see Note 13 Disposal group held for sale and discontinued operations.\n\n \n\n2.On September 21, 2025, Michpal Technologies, a subsidiary of the Company, completed its initial public\noffering pursuant to a prospectus (the “Offering”), thereby becoming a public company (as defined under the Companies Law),\nwhose shares are traded on the Tel Aviv Stock Exchange. As part of the Offering, Michpal issued 4,910,000 new ordinary shares at a price\nof NIS 61.1 per share (approximately $18.6 per share), for aggregate net\nproceeds of approximately NIS 288 million, net of issuance expenses (approximately $87,300 thousand).\n\n \n\n3.On October 29, 2025, the Board of Directors of TSG approved a capital raising through a private placement\nto several investors in the amount of approximately NIS 103,500 thousand (approximately $31,300\nthousand), as well as an additional capital raise of approximately NIS 64,500 thousand (approximately $19,500\nthousand), subject to the exercise of options granted to investors in the same financing round. As a result of the private placement,\nour direct ownership interest in TSG Systems was diluted from 37.33%. For further information regarding an additional financing round\nof TSG subsequent to the end of the reporting period, see Note 26 Subsequent events.\n\n \n\n4.For further information regarding the completion of the merger between Magic Software and Matrix IT, see\nNote 26 Subsequent events.\n\n \n\nF-21\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S. dollars in thousands, except share and\nper share data**\n\n \n\n**NOTE\n1:- GENERAL (Cont.)**\n\n \n\ne.Definitions:\n\n \n\nIn these financial\nstatements:\n\n \n\n \nThe Company or Formula\n-\nFormula Systems (1985) Ltd.\n\n \n \n \n \n\n \nSubsidiaries\n-\nCompanies that are controlled by the Company (as defined in IFRS 10) and whose accounts are consolidated with those of the Company.\n\n \n \n \n \n\n \nJointly controlled entities\n-\nCompanies owned by various entities that have a contractual arrangement for joint control and are accounted for using the equity method of accounting.\n\n \n \n \n \n\n \nAssociates\n-\nCompanies over which the Company has significant influence and that are not subsidiaries. The Company’s investment therein is included in the financial statements using the equity method of accounting.\n\n \n \n \n \n\n \nInvestees\n-\nSubsidiaries, Jointly controlled entities, Associates, and entities measured at fair value through profit or loss and  through other .\n\n \n \n \n \n\n \nThe Group\n-\nFormula Systems (1985) Ltd. and its investees.\n\n \n \n \n \n\n \nInterested parties and controlling shareholder\n-\nAs defined in the Israeli Securities Regulations (Annual Financial Statements), 2010.\n\n \n \n \n \n\n \nRelated parties\n-\nAs defined in IAS 24.\n\n \n\nf.The following table presents the ownership of the Company’s Investees (the list consists only of\nactive companies):\n\n \n\n  \nPercentage of ownership \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nMatrix \n 48.12  \n 48.21 \n\nTopco (former –  Sapiens) \n 18.68  \n 43.51 \n\nMagic Software \n 46.71  \n 46.71 \n\nInsync \n 90.09  \n 90.09 \n\nMichpal \n 100.00  \n 100.00 \n\nTSG(1) \n 37.33  \n 42.71 \n\nOfek \n 80.00  \n 80.00 \n\nZAP Group \n 100.00  \n 100.00 \n\nShamrad \n 100.00  \n 100.00 \n\nHashahar \n 51  \n 51 \n\nFormula Infrastructure \n 100  \n 100 \n\nOther associate \n 21.45  \n 21.45 \n\n \n\n(1)TSG’s and other associate results of operations are reflected in the Company’s results of operations\nusing the equity method of accounting.\n\n \n\nF-22\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S. dollars in thousands, except share and\nper share data**\n\n \n\nNOTE\n2:- ACCOUNTING POLICIES\n\n \n\nThe following accounting policies\nhave been applied consistently in the financial statements for all periods presented, unless otherwise stated.\n\n \n\n1)Basis of presentation of the financial statements\n\n \n\nThese financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International\nAccounting Standards Board (“IFRS”).\n\n \n\nThe Company’s\nfinancial statements have been prepared on a cost basis, except for certain assets and liabilities such as: financial assets measured\nat fair value through other comprehensive income; liabilities in respect of business combination; other financial assets and liabilities\n(including derivatives) which are presented at fair value through profit or loss; provisions; employee benefit assets and liabilities;\ninvestments in associates and joint ventures.\n\n \n\nThe Company has elected\nto present the profit or loss items using the function of expense method.\n\n \n\n2)Use of estimates, judgments and assumptions:\n\n \n\nThe preparation of the consolidated financial statements requires management\nto make estimates, judgments, and assumptions, that have an effect on the application of the accounting policies and on the reported amounts\nof assets, liabilities, revenues and expenses in the financial statements. Such estimates, judgments and assumptions are related, but\nnot limited to, effective control and Estimate of Percentage of Completion for Measurement of Progress on Long-Term Fixed-Price Contracts.\nThe Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available\nat the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure\nof contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses\nduring the reporting periods. Actual results could differ from those estimates. Changes in accounting estimates are reported in the period\nof the change in estimate.\n\n \n\nIn the process of applying the accounting policies, the Group has made\nthe following judgments which have the most significant effect on the amounts recognized in the financial statements:\n\n \n\n-Effective control:\n\n \n\nThe Company evaluates\nwhether it controls a company in which it holds less than the majority of the voting rights by, among others, reference to the size of\nits share of voting rights relative to the size and dispersion of voting rights held by the other shareholders, and by voting patterns\nat previous shareholders’ meetings. \n\n \n\n-Estimate of\nPercentage of Completion for Measurement of Progress on Long-Term Fixed-Price Contracts:\n\n \n\nThe percentage of\ncompletion is determined based on the ratio of actual costs incurred to the total estimated cost of each contract. This total cost is\nestimated by the Company based on assessments of expected labor costs, subcontractor costs, and other relevant factors.\n\n \n\n3)Consolidated financial statements:\n\n \n\nThe consolidated financial\nstatements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when\nthe Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to unilaterally\naffect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has\ncontrol. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.\n\n \n\nThe financial statements of the Company and of the Investees, after\nbeing adjusted to comply with IFRS, are prepared for the same reporting period and using consistent accounting treatment of similar transactions\nand economic activities. Any discrepancies in the applied accounting policies are eliminated by making appropriate adjustments. Significant\nintragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated\nfinancial statements.\n\n \n\nA change in the ownership\ninterest of a subsidiary, without a loss of control, is accounted for as a change in equity by adjusting the carrying amount of the non-controlling\ninterests with a corresponding adjustment of the equity attributable to equity holders of the Company less / plus the consideration paid\nor received.\n\n \n\nF-23\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n3)Consolidated financial statements (Cont.):\n\n \n\nUpon the disposal of a subsidiary\nresulting in loss of control, the Company:\n\n \n\n-derecognizes the subsidiary’s assets (including goodwill)\nand liabilities.\n\n-derecognizes the carrying amount of non-controlling interests.\n\n-derecognizes the adjustments arising from translating financial\nstatements carried to equity.\n\n-recognizes the fair value of the consideration received.\n\n-recognizes the fair value of any remaining investment.\n\n-reclassifies the components previously recognized in other\ncomprehensive income (loss) on the same basis as would be required if the subsidiary had directly disposed of the related assets or liabilities.\n\n-recognizes any resulting difference (surplus or deficit) as\ngain or loss.\n\n \n\nFor further information\nsee Note 13 Disposal group held for sale and discontinued operations.\n\n \n\n4)Effective control:\n\n \n\nIn a situation where\nthe Company holds less than a majority of voting power in a given entity, but that power is sufficient to enable the Company to unilaterally\ndirect the relevant activities of such entity, then control is exercised. When assessing whether voting rights held by the Company are\nsufficient to give it power, the Company considers all facts and circumstances, including: the amount of those voting rights relative\nto the amount and dispersion of other vote holders; potential voting rights held by the Company and other shareholders or parties; rights\narising from other contractual arrangements; significant personal ties; and any additional facts and circumstances that may indicate that\nthe Company has, or does not have, the ability to direct the relevant activities when decisions need to be made, inclusive of voting patterns\nobserved at previous meetings of shareholders.\n\n \n\nThe Company’s\nmanagement has concluded that despite the lack of absolute majority of voting power at the general meetings of shareholders of Matrix\nand Magic Software, in accordance with IFRS 10, these investees are controlled by the Company. The conclusion regarding the existence\nof control during the years ended December 31, 2025, 2024 and 2023 with respect to Matrix and Magic Software, in accordance with IFRS\n10, was made in accordance with the following factors:\n\n \n\nMatrix:\n\n \n\nAs of December 31,\n2025, the Company held 48.12% of the outstanding ordinary shares of Matrix. The conclusion regarding the existence of control in Matrix,\nin line with IFRS 10, was made considering the following additional factors:\n\n \n\nF-24\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n4)Effective control (Cont.):\n\n \n\ni)Governing bodies of Matrix:\n\n \n\nDecisions of Matrix shareholders’\ngeneral meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts\nresolutions to elect individual directors, appoint Matrix’s independent auditors for the next year, as well as approve Matrix’s\nfinancial statements and management’s report on operations; in accordance with Matrix’s articles of association, the board\nof directors of Matrix is responsible for managing its current business operations and is authorized to take substantially all decisions\nwhich are not specifically reserved to Matrix’s shareholders by its articles of association, including the decision to pay out dividends;\nMatrix’s board of directors is composed of 5 members, 2 of whom are external directors as required by the Israeli Companies Law,\n5759-1999, another one of whom is an independent director, while the remaining two directors are associated with Formula, including Formula’s\nchief executive officer who serves as the chairman of Matrix’s board of directors.\n\n \n\nii)Shareholders structure of Matrix:\n\n \n\nMatrix shareholders’ structure may be considered dispersed because,\napart from the Company, only three shareholders (each Israeli institutional investors) held more than 5% of Matrix’s voting power\nas of December 31, 2025 (holds 8.5%, 6.4% and 5.7%, respectively); there is no evidence that any of the shareholders has or had granted\nto any other shareholder a voting proxy at the general meeting; over the last three years (i.e., 2023-2025), Matrix’s general meetings\nwere attended by shareholders representing in aggregate between 82%-86% of total voting rights. This means that the level of activity\nof the Matrix’s shareholders is relatively moderate. Bearing in mind that the Company presently holds approx. 48.12% of total voting\nrights, the attendance from shareholders would have to be higher than 96.24% in order to deprive Formula of an absolute majority of votes\nat the general meeting. The Company believes that achieving such high attendance seems unlikely. In addition, Israeli law provides that\ninstitutional investors should not hold the ability to direct the company’s business and as such should not exceed 20% each. An\ninstitutional investor also cannot hold more than 20% of the seats on a board of directors. Looking at the entire Israeli market, the\npractice is that institutional investors do not take positions on boards of directors – as having such a position would impact institutional\ninvestors’ ability to enter into certain transactions on the market (due to insider trading concerns). If institutional investors\ncooperate among themselves, they may be considered violating this rule; especially if they vote in the same manner and contrary to the\nmajor shareholder, they might be accused of cooperation and violation of the rule. Hence, there are both legal and practical limitations\nto these investors coordinating their approaches.\n\n \n\nTherefore it is management’s\nopinion that despite the lack of an absolute majority of shares in Matrix, the Company is still able to influence the appointment of directors\nat Matrix and therefore may affect Matrix’ directions of development as well as its current business operations.\n\n \n\nF-25\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n4)Effective control (Cont.):\n\n \n\nMagic Software:\n\n \n\nAs of December 31,\n2025, the Company held 46.71% of the outstanding ordinary shares of Magic Software. The conclusion regarding the existence of control\nin Magic Software, in line with IFRS 10, was made considering the following factors:\n\n \n\ni)Governing bodies of Magic Software:\n\n \n\nDecisions of Magic Software shareholders’\ngeneral meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts\nresolutions to elect individual directors, appoint Magic Software’s independent auditors for the next year, as well as to approve\nMagic Software’s financial statements and the management’s report on operations; in accordance with Magic Software’s\narticles of association, the board of directors of Magic Software is responsible for managing Magic Software’s current business\noperations and is authorized to take substantially all decisions which are not specifically reserved to Magic Software’s shareholders\nby its articles of association, including the decision to pay out dividends; and, Magic Software’s board of directors is composed\nof 6 members, 4 of whom are external or independent directors, the other two are associated with Formula, including Formula’s chief\nexecutive officer, who also serves as Magic Software’s chief executive officer.\n\n \n\nii)\nShareholders’ structure of Magic Software:\n\n \n\nMagic Software shareholders’ structure is dispersed because,\napart from the Company, as of December 31, 2025, three financial Israeli institutional shareholders holding more than 5% of Magic Software’s\nvoting rights (holds 13.9%, 7% and 5.1%, respectively); there is no evidence that any of the shareholders have or had granted to any other\nshareholder a voting proxy at the general meeting; and, over the last three years (i.e., 2023-2025), Magic Software’s general meetings\nwere attended by shareholders representing between 84%-86% of the total voting rights. This means that the level of activity of the Magic\nSoftware’s shareholders is relatively moderate. Bearing in mind that the Company presently holds approx. 46.71% of total voting\nrights, the attendance from shareholders would have to be higher than 93.42% in order to deprive Formula of an absolute majority of votes\nat the general meeting. The Company believes that achieving such high attendance seems unlikely. In addition, Israeli law provides that\ninstitutional investors should not hold the ability to direct the company’s business and as such should not exceed 20% each. An\ninstitutional investor cannot also hold more than 20% seats in board of directors. Looking at the entire Israeli market, the practice\nis that institutional investors do not take positions on boards of directors – as having such position would impact institutional\ninvestors’ ability to enter into certain transactions on the market (due to insider trading concerns). If institutional investors\ncooperate among themselves, they may be considered violating this rule – moreover, if they vote in the same way, contrary to the\nmajor shareholder, they might be accused of cooperation and violation of the rule. Hence, there are both legal and practical limitations\nto these investors’ coordinating their approaches.\n\n \n\nTherefore, it is management’s\nopinion that despite the lack of an absolute majority of shares in Magic Software, the Company is still able to influence the appointment\nof directors at Magic Software and therefore may affect Magic Software’s directions of development as well as its current business\noperations.\n\n \n\nF-26\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n5)Non-controlling interests\n\n \n\nNon-controlling interests\nin subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests\nare presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of\nother comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests\neven if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in\nthe ownership interest of a subsidiary, without a loss of control, is accounted for as a change in equity by adjusting the carrying amount\nof the non-controlling interests with a corresponding adjustment of the equity attributable to equity holders of the Company less / plus\nthe consideration paid or received. For more information regarding put options to the Non-controlling interests please see Note 2(19)(E)\nbelow.\n\n \n\n6)Business combinations and goodwill:\n\n \n\nBusiness combinations\nare accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred\non the acquisition date with the addition of non-controlling interests in the acquiree. In each business combination, the Company determines\nwhether to measure the non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate\nshare in the fair value of the acquiree’s net identifiable assets.\n\n \n\nDirect acquisition\ncosts are carried to the statement of profit or loss as incurred.\n\n \n\nContingent consideration\nis recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9, “Financial\nInstruments”. Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent\nconsideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.\n\n \n\nContingent consideration\nis recognized at fair value on the acquisition date. If the contingent consideration is classified as a financial asset or liability in\naccordance with IFRS 9, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the\ncontingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent\nremeasurement.\n\n \n\nGoodwill is initially\nmeasured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net\nidentifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain\non the acquisition date.\n\n** **\n\nF-27\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n7)Acquisition of a single asset company:\n\n \n\nUpon the acquisition\nof a single asset company, the Group evaluates whether it is the acquisition of a business or of an asset. To be considered a business,\nthe acquisition must include, at a minimum, an input and a substantive process that together can significantly contribute to the creation\nof outputs. The acquisition is accounted for as a business combination if the single asset company is a business. If it is not a business,\nthe acquisition is accounted for as the acquisition of assets and liabilities. In such an acquisition, the cost of the acquisition includes\ntransaction costs which are allocated to the identifiable acquired assets and liabilities proportionally based on their fair value on\nthe acquisition date. In such case, goodwill and deferred taxes in respect of the temporary differences existing as of the acquisition\ndate are not recognized.\n\n \n\n8)Investment in joint arrangements:\n\n \n\nJoint arrangements\nare arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control of an arrangement,\nwhich exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.\n\n \n\ni.Joint ventures:\n\n \n\nIn joint ventures\nthe parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted\nfor by using the equity method.\n\n \n\n9)Investments in associates:\n\n \n\nAssociates are companies\nin which the Group has significant influence over the financial and operating policies without having control. The investment in an associate\nis accounted for using the equity method.\n\n \n\n10)Functional currency, presentation currency and foreign currency:\n\n \n\ni.Functional currency and presentation currency:\n\n \n\nThe presentation currency of these\nconsolidated financial statements of the Group is the U.S. dollar (the “dollar”), since the Company believes that financial\nstatements in U.S. dollars provide more relevant information to its investors and users of the financial statements. The functional currency\napplied by Formula, on a stand-alone basis, Since January 1, 2019 is the NIS. The functional currencies applied by Formula’s subsidiaries\nand associates are the currencies of the primary economic environment in which each one of them operates.\n\n \n\nAssets and liabilities of an investee\nwhich is a foreign operation, including fair value adjustments upon acquisition, are translated at the closing rate at each reporting\ndate. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences are\nrecognized in other comprehensive income.\n\n \n\nF-28\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n10)Functional currency, presentation currency and foreign currency (Cont.):\n\n \n\ni.Functional currency and presentation currency (Cont.):\n\n \n\nIntragroup loans for which settlement\nis neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign operation\nand, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive income.\n\n \n\nUpon the full or partial disposal of\na foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which\nhad been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which\nresults in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is\nreattributed to non-controlling interests.\n\n \n\nSubsequent to the reporting period,\neffective January 1, 2026, the Company changed its functional currency from NIS to U.S. dollars, following a change in the primary economic\nenvironment in which the Company operates. Management assessed the relevant primary and secondary indicators in accordance with IAS 21\nand determined that the U.S. dollar has become the currency that most faithfully represents the economic effects of the underlying transactions,\nevents and conditions, primarily reflected in the currency in which the Company holds and manages its monetary assets and conducts its\nfinancing activities. The change in functional currency is accounted for prospectively from the date of the change and, therefore, did\nnot affect the Company’s financial statements for the year ended December 31, 2025. Since the Company’s presentation currency\nis already the U.S. dollar, no change was made to the presentation currency. For further information, see Note 26 subsequent events.\n\n \n\nii.Transactions, assets and liabilities in foreign currency:\n\n \n\nTransactions\ndenominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After\ninitial recognition, monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the\nfunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss. Non-monetary\nassets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the\ntransaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the\nfunctional currency using the exchange rate prevailing at the date when the fair value was determined.\n\n \n\n11)Short-term deposits:\n\n \n\nShort-term deposits\nare deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash\nequivalents. The deposits are presented according to their terms of deposit. Restricted deposits include deposits used to secure certain\nsubsidiaries’ ongoing projects, as well as security deposits with respect to leases, and are classified under other short-term and\nlong-term receivables.\n\n \n\nF-29\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n12)Inventories:\n\n \n\nInventories are measured\nat the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the\ninventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business\nless estimated costs of completion and estimated costs necessary to make the sale. Inventories are mainly comprised of purchased merchandise\nand products which consist of educational software kits, computers, peripheral equipment and spare parts. Cost is determined on the “first\nin – first out” basis. The Group periodically evaluates the condition and aging of its inventories and makes provisions for\nslow-moving inventories accordingly. No such impairments have been recognized in any period presented.\n\n \n\n13)Revenue recognition:\n\n \n\nRevenue from contracts\nwith customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the\namount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third\nparties (such as taxes).\n\n \n\nIn determining\nthe amount of revenue from contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement.\nThe Group is a principal when the Group controls the promised goods or services before transferring them to the customer. In these\ncircumstances, the Group recognizes revenue for the gross amount of the consideration. When the Group is an agent, it recognizes\nrevenue for the net amount of the consideration, after deducting the amount due to the principal.\n\n \n\nSale of software\nlicensing, maintenance services and post implementation consulting services\n\n \n\nA software licensing\ntransaction that does not require significant implementation services is considered a distinct performance obligation, as the customer\ncan benefit solely from the software on its own or together with other readily available resources.\n\n \n\nThe Group recognizes\nrevenue from software licensing transactions at a point in time when the Group provides the customer a right to use the Group’s\nintellectual property as it exists at the point in time at which the license is granted to the customer. The Group recognizes revenue\nfrom software licensing transactions over time when the Group provides the customer a right to access the Group’s intellectual property\nthroughout the license term. The Group may generate revenue from sale of software licensing which includes significant implementation\nand customization services. In such contracts the Group is normally committed to provide the customer with a functional IT system and\nthe customer can only benefit from such functional system, being the final product that would normally be comprised of proprietary licenses\nand significant related services. Revenues from these contracts are based on either fixed price or time and material.\n\n \n\nSoftware licensing\ntransactions which involve significant implementation, customization, or integration of the Group’s software license to customer-specific\nrequirements, are considered as one performance obligation satisfied over-time. The underlying deliverable is owned and controlled by\nthe customer and does not create an asset with an alternative use to the Group. In addition, the Group has an enforceable\nright to payment for performance completed throughout the duration of the contract.\n\n \n\nF-30\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n13)Revenue recognition (Cont.):\n\n  \n\nAccordingly, the Group\nrecognizes revenue from such contracts over time, using the percentage of completion accounting method. The Group recognizes revenue and\ngross profit as the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract.\nProvisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the\namount of the estimated loss for the entire contract.\n\n \n\nWhen post implementation\nand consulting services do not involve significant customization, the Group accounts for such services as performance obligations satisfied\nover time and revenues are recognized as the services are provided.\n\n* *\n\nRevenue from maintenance\nis recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Group’s\nperformance. When payments from customers are made before or after the service is performed, the Group recognizes the resulting contract\nasset or liability.\n\n** **\n\nSale of hardware\nand infrastructure\n\n** **\n\nRevenue from the sale\nof hardware and infrastructure is recognized in profit or loss at the point in time when the control of the goods is transferred to the\ncustomer, generally upon delivery of the goods to the customer.\n\n \n\nSale of training\nand implementation services\n\n* *\n\nRevenues from training\nand implementation services are recognized when the service is provided. Revenue from training services in respect of public courses whose\noperating range is up to 3 months is recognized at the end of the course period. Revenues from training services in respect of long-term\ncourses will be recognized over the term of the course. Revenues from implementation projects ordered by organizations is recognized according\nto actual inputs (actually worked hours).\n\n** **\n\nRevenue of contracts\naccording to actual inputs\n\n* *\n\nRevenue from framework\nagreements for the performance of work according to actual inputs is recognized according to the hours invested.\n\n* *\n\nRevenue of fixed\nprice contracts\n\n* *\n\nRevenue from long-term fixed-price contracts that involve significant\nimplementation, customization, or integration to customer-specific requirements is recognized over time. The underlying deliverable is\nowned and controlled by the customer or does not create an asset with an alternative use to the Group and the Group has an enforceable\nright to payment for performance completed throughout the duration of the contract.\n\n \n\nF-31\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n13)Revenue recognition (Cont.):\n\n \n\nThe Group applies\na cost-based input method for measuring the progress of performance obligations that are satisfied over time. In applying this cost-based\ninput method, the Group estimates the costs to complete contract performance in order to determine the amount of the revenue to be recognized.\nThese estimated costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable\nallocation method. In certain circumstances, the Group is unable to measure the outcome of a contract, but the Group expects to recover\nthe costs incurred in fulfilling the contract as of the reporting date. In such circumstances, the Group recognizes revenue to the extent\nof the costs incurred as of the reporting date until such time the outcome of the contract can be reasonably measured. If a loss is anticipated\nfrom a contract, the loss is recognized in full regardless of the percentage of completion.\n\n \n\nWhen appropriate,\nthe Group also applies a practical expedient permitted under IFRS 15 whereby if the Group has a right to consideration from a customer\nin an amount that corresponds directly with the value to the customer of the Group’s performance completed to date (for example,\na service contract in which an entity bills a fixed amount for each hour of service provided), the Group may recognize revenue in the\namount it is entitled to invoice. Deferred revenues, which represent a contract liability, include unearned amounts received under maintenance\nand support (mainly) and amounts received from customers for which revenues have not yet been recognized.\n\n \n\nAllocating the\ntransaction price\n\n \n\nFor contracts that\nconsist of more than one performance obligation, at contract inception the Group allocates the contract transaction price to each performance\nobligation identified in the contract on a relative stand-alone selling price basis. The stand-alone selling price is the price at which\nthe Group would sell the promised goods or services separately to a customer. The Group determines the stand-alone selling price for the\npurposes of allocating the transaction price to each performance obligation by considering several external and internal factors including,\nbut not limited to, transactions where the specific performance obligation is sold separately, historical actual pricing practices and\ngeographies in which the Group offers its products and services. If a specific performance obligation, such as the software license, is\nsold for a broad range of amounts (that is, the selling price is highly variable) or if the Group has not yet established a price for\nthat good or service, and the good or service has not previously been sold on a stand-alone basis (that is, the selling price is uncertain),\nthe Group applies the residual approach whereby all other performance obligations within a contract are first allocated a portion of the\ntransaction price based upon their respective stand-alone selling prices,\n\nwith any residual\namount of transaction price allocated to the remaining specific performance obligation.\n\n \n\nVariable consideration\n\n \n\nThe Group determines\nthe transaction price separately for each contract with a customer. When exercising this judgment, the Group evaluates the effect of each\nvariable amount in the contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining\nthe effect of the variable consideration, the Group normally uses the “most likely amount” method described in the Standard.\nPursuant to this method, the amount of the consideration is determined as the single most likely amount in the range of possible consideration\namounts in the contract. According\nto the Standard, variable consideration is included in the transaction price only to the extent that it is highly probable that a significant\nreversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently\nresolved.\n\n \n\nF-32\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n13)Revenue recognition (Cont.):\n\n \n\nCosts of obtaining\na contract\n\n \n\nIn order to obtain\ncertain contracts with customers, the Group incurs incremental costs in obtaining the contract (such as sales commissions which are contingent\non making binding sales). Costs incurred in obtaining the contract with the customer which would not have been incurred if the contract\nhad not been obtained and which the Group expects to recover are recognized as an asset and amortized on a systematic basis that is consistent\nwith the provision of the services under the specific contract. An impairment loss in respect of capitalized costs of obtaining a contract\nis recognized in profit or loss when the carrying amount of the asset exceeds the remaining amount of consideration that the Group expects\nto receive for the goods or services to which the asset relates, less the costs that relate directly to providing those goods or services\nand that have not been recognized as expenses.\n\n \n\nThe Group has elected\nto apply the practical expedient allowed by IFRS 15 according to which incremental costs of obtaining a contract are recognized as an\nexpense when incurred if the amortization period of the asset is one year or less.\n\n \n\nRevenues that include\nwarranty services\n\n \n\nIn certain cases,\nthe Group also provides a warranty for goods and services sold (i.e., extended warranties when the Group contractually undertakes to repair\nany errors in the delivered software within a strictly specified time limit and/or when the scope of which is broader than just an assurance\nto the customer that the product/service complies with agreed-upon specifications). The Group has ascertained that such warranties granted\nby the Group meet the definition of service. The conclusion regarding the extended nature of a warranty is made whenever the Group contractually\nundertakes to repair any errors in the delivered software within a strictly specified time limit and/or when such warranty is more extensive\nthan the minimum required by law. Under IFRS 15, the fact of granting an extended warranty indicates that the Group provides an additional\nservice. As such, the Group recognizes an extended warranty as a separate performance obligation and allocates a portion of the transaction\nprice to such service. In all cases where an extended warranty is accompanied by a maintenance service, which is even a broader category\nthan the extended warranty itself, revenues are recognized over time because the customer consumes the benefits of such service as it\nis performed by the provider. If this is the case, the Group continues to allocate a portion of the transaction price to such maintenance\nservice. Likewise, in cases where a warranty service is provided after the project completion and is not accompanied by any maintenance\nservice, then a portion of the transaction price and analogically recognition of a portion of contract revenues will have to be deferred\nuntil the warranty service is actually fulfilled.\n\n \n\nF-33\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n13)Revenue recognition (Cont.):\n\n \n\nDisaggregation\nof revenue\n\n \n\nService revenue includes\ncontracts primarily for the provision of supplies and services other than design, development, customization, implementation, software\nmaintenance and support and software updates associated with delivery of products or proprietary software. It may be a stand-alone service\ncontract or a service performance obligation which is distinct from a contract or performance obligation for design, development, customization,\nsupport and upgrade or delivery of product. The Group’s service contracts include contracts in which the customer simultaneously\nreceives and consumes the benefits provided as the performance obligations are satisfied. The Group’s service contracts primarily\ninclude operation-type contracts, outsourcing, consulting, remote development services, digital advertising management, training and similar\nactivities.\n\n \n\nTransaction prices\nallocated to performance obligation\n\n \n\nRemaining performance\nobligations represent contract revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced\nand recognized as revenue in future periods. The aggregate amount of consideration allocated to performance obligations either not satisfied\nor partially unsatisfied was approximately $2,960,923 as of December 31, 2025.\n\n \n\nRemaining performance\nobligations include the remaining non-cancelable, committed and fixed portion of these contracts for their entire duration. The remaining\nperformance obligations related to professional services contracts that are on a time and materials basis were excluded, as the Company\nelected to apply the practical expedient in accordance with IFRS 15. The Company expected to recognize approximately 77% in 2026 from\nremaining performance obligations as of December 31, 2025, and the remainder thereafter.\n\n \n\n14)Taxes on Income:\n\n \n\nCurrent or deferred\ntaxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income\nor equity.\n\n \n\n●Current taxes:\n\n \n\nThe current tax\nliability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as\nadjustments required in connection with the tax liability in respect of previous years.\n\n \n\n●Deferred taxes:\n\n \n\nDeferred taxes are\ncomputed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax\npurposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled,\nbased on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are reviewed at each reporting\ndate and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward losses and temporary differences\nfor which deferred tax\nassets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that\ntheir utilization is probable.\n\n \n\nF-34\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n14)Taxes on Income (Cont.):\n\n \n\nTaxes that would\napply in the event of the disposal of investments in investees have not been considered in computing deferred taxes, as long as the disposal\nof the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution\nof earnings by investees as dividends have not been considered in computing deferred taxes, since the distribution of dividends does not\ninvolve an additional tax liability or since it is the Group’s policy not to initiate distribution of dividends from a subsidiary\nthat would trigger an additional tax liability. Taxes on income that relate to distributions of an equity instrument and to transaction\ncosts of an equity transaction are accounted for pursuant to IAS 12. Deferred taxes are offset if there is a legally enforceable right\nto offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation\nauthority.\n\n \n\n15)Leases:\n\n \n\nThe Group accounts\nfor a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange\nfor consideration.\n\n \n\ni)The Group as lessee:\n\n \n\nFor leases in which\nthe Group is the lessee, the Group recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding\nleases whose term is up to twelve months and leases for which the underlying asset is of low value. For these excluded leases, the Group\nhas elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring\nthe lease liability, the Group has elected to apply the practical expedient in the Standard and does not separate the lease components\nfrom the non-lease components (such as management and maintenance services, etc.) included in a single contract.\n\n \n\nLeases which entitle\nemployees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions\nof IAS 19 and not as subleases.\n\n \n\nOn the commencement\ndate, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be\nreadily determined, or otherwise using the Group’s incremental borrowing rate. After the commencement date, the Group measures the\nlease liability using the effective interest rate method.\n\n \n\nOn the commencement\ndate, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the\ncommencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the\nshorter of its useful life and the lease term.\n\n \n\nF-35\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n15)Leases (Cont.):\n\n \n\ni)The Group as lessee (Cont.):\n\n \n\nFollowing are the\namortization periods of the right-of-use assets by class of underlying asset:\n\n \n\n   Years   Mainly \n\n         \n\nLand and Buildings   2-12    3 \n\nMotor vehicles   2-3    3 \n\n \n\nThe Group tests\nfor impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.\n\n \n\nii)Lease extension and termination options:\n\n \n\nA non-cancelable lease\nterm includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be\nexercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be\nexercised.\n\n \n\nIn the event of any\nchange in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Group\nremeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations.\nThe total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions\nare recognized in profit or loss.\n\n \n\niii)Lease modifications:\n\n \n\nIf a lease modification\ndoes not reduce the scope of the lease and does not result in a separate lease, the Group remeasures the lease liability based on the\nmodified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment\nto the right-of-use asset. If a lease modification reduces the scope of the lease, the Group recognizes a gain or loss arising from the\npartial or full reduction of the carrying amount of the right-of-use asset and the lease liability. The Group subsequently remeasures\nthe carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification\ndate and records the change in the lease liability as an adjustment to the right-of-use asset.\n\n \n\nF-36\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n16)Property, plant and equipment, net:\n\n \n\nProperty, plant and equipment are measured\nat cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment\ngrants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with\nplant and equipment. The cost of an item of property, plant and equipment comprises the initial estimate of the costs of dismantling\nand removing the item and restoring the site on which the item is located.\n\n \n\nDepreciation is calculated\non a straight-line basis over the useful life of the assets at annual rates as follows:\n\n \n\n  \n**%**\n\n  \n \n\nComputers, software, and peripheral equipment \n20 – 66 (mainly 33)\n\nOffice furniture and equipment \n6 – 33 (mainly 7)\n\nMotor vehicles \n13 – 20 (mainly 15)\n\n \n\nLeasehold improvements\nare amortized using the straight-line method over the term of the lease (including option terms that are deemed to be reasonably assured)\nor the estimated useful life of the improvements, whichever is shorter.\n\n \n\nThe useful life, the\ndepreciation method and the residual value of an asset are reviewed at least each year-end (at the end of the year) and any changes are\naccounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset\nis classified as held for sale and the date that the asset is derecognized. For impairment testing of property, plant and equipment, see\nnote 2(18) below.\n\n** **\n\n17)\nIntangible assets, net:\n\n \n\nSeparately acquired\nintangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business\ncombination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding\ncapitalized development costs, are recognized in profit or loss when incurred. Intangible assets with a finite useful life are amortized\nover their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period\nand the amortization method for an intangible asset are reviewed at least at each year end.\n\n \n\nCapitalized software\ncosts are measured at cost less any accumulated amortization and any accumulated impairment losses on a product-by-product basis. Amortization\nof capitalized software costs begin when the development is complete, and the product is available for use or for sale. The Company considers\na product to be available for use when the Company completes its internal validation of the product that is necessary to establish that\nthe product meets its design specifications including functions, features, and technical performance requirements. Internal validation\nincludes the completion of coding, documentation and testing that ensure bugs are reduced to a minimum. The internal validation of the\nproduct takes place a few weeks before the product is made available to the market. In certain instances, the Company enters into a short\npre-release stage, during which the product is made available to a selected number of customers as a beta program for their own review\nand familiarization. Subsequently, the release is made generally available to customers. Once a product is considered available for use,\nthe capitalization of costs ceases and amortization of such costs to “cost of sales” begins.\n\n \n\nCapitalized software\ncosts are amortized on a product-by-product basis by the straight-line method over the estimated useful life of the software product (between\n3-10 years).\n\n \n\nF-37\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n17)\nIntangible assets, net (Cont.):\n\n \n\nOther intangible\nassets\n\n \n\nIntangible assets\nexcluding capitalized development costs are comprised mainly of customer-related intangible assets, backlogs, acquired technology and\npatent, and are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits\nof the intangible assets are consumed or otherwise used up. The useful life of intangible assets is as follows:\n\n \n\n  \n**Years** \n\nCustomer relationship, backlog and distribution rights \n 1 – 10 \n\nAcquired technology \n 2 – 7 \n\nPatents \n 10 \n\n \n\nGains or losses arising\nfrom the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount\nof the asset and are recognized in profit or loss. The useful life of these assets is reviewed annually to determine whether their indefinite\nlife assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in\nthe useful life assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate, and on that date\nthe asset is tested for impairment. Commencing from that date, the asset is amortized systematically over its useful life.\n\n \n\nDuring the period,\nthe Company identified indicators that resulted in a reassessment of the useful life of certain customer relationships. As a result, the\nestimated useful lives of these assets were shortened, leading to accelerated amortization, which was recognized in profit or loss and\naccounted for as a change in accounting estimate. which resulted in an additional amortization expense of approximately $18,705 during\nthe year ended December 31, 2025.\n\n \n\n18)Impairment of non-financial assets:\n\n \n\nThe Group evaluates\nthe need to record an impairment of non-financial assets (property, plant and equipment, capitalized software costs and other intangible\nassets, goodwill, investments in joint venture) whenever events or changes in circumstances indicate that the carrying amount is not recoverable.\nIf the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The\nrecoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash\nflows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that\ndoes not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are\nrecognized in profit or loss.\n\n \n\nAn impairment loss\nof an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset’s recoverable\namount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower\nof the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for\nthe asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit\nor loss.\n\n \n\nF-38\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n18)Impairment of non-financial assets (Cont.):\n\n \n\nThe following criteria\nare applied in assessing impairment of these specific assets:\n\n \n\ni.Goodwill in respect of subsidiaries:\n\n \n\nFor the purpose\nof impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of our cash-generating\nunits that are expected to benefit from the synergies of the combination. The Group reviews goodwill for impairment once a year, on December\n31, or more frequently if events or changes in circumstances indicate that there is an impairment. Goodwill is tested for impairment by\nassessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill has been allocated.\nAn impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill\nhas been allocated is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss\nis allocated first to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.\n\n \n\nThe discounted cash\nflow method is used to determine the recoverable amount of a cash-generating unit or the group of cash-generating units to which goodwill\nis allocated. The projected cash flows are derived from the budget for the next five years and do not include restructuring activities\nto which the Company is not yet committed or significant future investments that will enhance the performance of the assets of the cash-generating\nunit being tested. The recoverable amount is sensitive to key assumptions used by the Company’s management to determine the recoverable\namount, including discount rates and future growth rate. The discount rates are calculated based on a risk-free rate of interest and a\nmarket risk premium. The discount rates reflect the current market assessment of the risks specific to each group of cash-generating units\nby taking into account specific group information on beta factors, leverage and cost of debt. The Company performed annual impairment\ntests as of December 31, 2025, 2024 and 2023 and did not identify any impairment losses.\n\n \n\nii.Investment in associate or joint venture using the equity method:\n\n** **\n\nAfter application\nof the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the investment\nin associates or joint ventures. The Group determines at each reporting date whether there is objective evidence that the carrying amount\nof the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire\ninvestment, including the goodwill attributed to the associate or the joint venture.\n\n** **\n\niii.Intangible assets with an indefinite useful life / capitalized development costs that have not yet been\nsystematically amortized:\n\n** **\n\nThe impairment test\nis performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.\n\n** **\n\nDuring the years ended\nDecember 31, 2025, 2024 and 2023, no impairment indicators were identified.\n\n \n\nF-39\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n2:- ACCOUNTING POLICIES (Cont.)**\n\n** **\n\n19)Financial instruments:\n\n** **\n\nA.Financial assets:\n\n \n\nFinancial assets\nare measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial\nassets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in\nprofit or loss.\n\n \n\nB.Financial liabilities:\n\n** **\n\ni.Financial liabilities measured at amortized cost:\n\n** **\n\nFinancial liabilities\nare initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.\nAfter initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest rate method, except\nfor:\n\n** **\n\n**●**Financial liabilities at fair value through profit or loss, such as derivatives;\n\n   \n\n**●**Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition\nor when the continuing involvement approach applies;\n\n   \n\n**●**Financial guarantee contracts; and\n\n   \n\n**●**Contingent consideration recognized by an acquirer in a business combination as to which IFRS 3 applies.\n\n \n\nii.Financial liabilities measured at fair value through profit or loss:\n\n \n\nAt initial recognition,\nthe Group measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit\nor loss. After initial recognition, changes in fair value are recognized in profit or loss.\n\n \n\nC.Derecognition of financial liabilities:\n\n \n\nA financial liability is\nderecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires. A financial liability is\nextinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services or is legally\nreleased from the liability.\n\n \n\nWhen there is a modification to the terms of an existing financial liability, the Group evaluates\nwhether the modification is substantial.\n\n \n\nIf the terms of an existing financial\nliability are substantially modified, such modification is accounted for as an extinguishment of the original liability and the recognition\nof a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss. If the modification\nis not substantial, the Group recalculates the carrying amount of the liability by discounting the revised cash flows at the original\neffective interest rate and any resulting difference is recognized in profit or loss.\n\n \n\nF-40\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:-\nACCOUNTING POLICIES (Cont.)**\n\n** **\n\n19)Financial instruments (Cont.):\n\n \n\nD.Compound financial instruments:\n\n \n\ni)Convertible debentures which contain both an equity component\nand a liability component are separated into two components. This separation is performed by first determining the liability component\nbased on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual\namount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the\nallocation of proceeds to the equity and liability components.\n\n** **\n\nii)Convertible debentures that are denominated in foreign currency\ncontain two components: the conversion component and the debt component. The liability conversion component is initially recognized as\na financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated\nbetween the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.\n\n \n\nE.Put option granted to non-controlling interests:\n\n \n\nWhen the Group grants to non-controlling interests a put option to\nsell part or all of their interests in a subsidiary, during a certain period, even if such purchase obligation is conditional on the counterparty’s\nexercise of its contractual right to cause such redemption, if the put option agreement does not transfer to the Group any benefits incidental\nto ownership of the equity instrument (i.e. the Group does not have a present ownership in the shares concerned) then at the end of each\nreporting period the non-controlling interests (to which a portion of net profit attributable to non-controlling interests is allocated)\nare classified as a financial liability, as if such put-able equity instrument was redeemed on that date. The difference between the non-controlling\ninterests carrying amount at the end of the reporting period and the present value of the liability is recognized directly in equity of\nthe Group, under “Additional paid-in capital”. The Group remeasures the financial liability at the end of each reporting period\nbased on the estimated present value of the consideration to be transferred upon the exercise of the put option.\n\n \n\nIf the option is exercised in subsequent\nperiods, the consideration paid upon exercise is treated as settlement of the liability. If the put option expires, the liability is settled\nand a portion of the investment in the subsidiary is accounted for as if it was disposed of, without loss of control therein.\n\n \n\nIf the Group has present ownership\nof the non-controlling interests, these non-controlling interests are accounted for as if they are held by the Group, and changes in the\namount of the liability are carried to profit or loss.\n\n \n\nF-41\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n20)Fair value measurement:\n\n \n\nFair value is the\nprice that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at\nthe measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the\nliability’s principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset\nor a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that\nmarket participants act in their economic best interest. Fair value measurement of a non-financial asset takes into account a market participant’s\nability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that\nwould use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for\nwhich sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of\nunobservable inputs.\n\n \n\nAll assets and liabilities\nmeasured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest\nlevel input that is significant to the entire fair value measurement:\n\n \n\nLevel 1-\nquoted prices (unadjusted) in active markets for identical assets or liabilities.\n\n   \n \n\n Level 2-\ninputs other than\nquoted prices included within Level 1 that are observable directly or indirectly.\n\n   \n \n\n Level 3-\ninputs that are\nnot based on observable market data (valuation techniques which use inputs that are not based on observable market data).\n\n \n\n21)Provisions:\n\n \n\nA provision in accordance\nwith IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable\nthat an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made\nof the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted\nusing a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific\nto the liability. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement\nis recognized as a separate asset but only when the reimbursement is virtually certain. The expense is recognized in the statement of\nprofit or loss net of any reimbursement.\n\n \n\nF-42\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n21)Provisions (Cont.):\n\n \n\nFollowing are the\ntypes of provisions included in the financial statements:\n\n \n\ni.Legal claims:\n\n \n\nA provision for claims is recognized\nwhen the Group has a present legal or constructive obligation as a result of a past event, it is more likely than not that an outflow\nof resources embodying economic benefits will be required by the Group to settle the obligation and a reliable estimate can be made of\nthe amount of the obligation.\n\n \n\nii.Contingent liability recognized in a business combination:\n\n \n\nA contingent liability in a business\ncombination is measured at fair value upon initial recognition. In subsequent periods, it is measured at the higher of the amount initially\nrecognized less, when appropriate, cumulative amortization, and the amount that would be recognized at the end of the reporting period\nin accordance with IAS 37.\n\n \n\n22)Employee benefit liabilities:\n\n \n\nThe Group maintains\nseveral employee benefit plans:\n\n \n\ni.Short-term employee benefits:\n\n** **\n\nShort-term employee\nbenefits are benefits that are expected to be settled wholly before twelve (12) months after the end of the annual reporting period in\nwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social\nsecurity contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing\nplan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by\nan employee and a reliable estimate of the amount can be made. The short-term employee benefit liability in the statement of financial\nposition is measured on an undiscounted basis.\n\n** **\n\nii.Post-employment benefits:\n\n \n\nThe plans are normally\nfinanced by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.\n\n \n\nFormula’s and\nits Israeli subsidiaries and associates accounted for at equity (as defined with respect to their Israeli employee contribution plans\npursuant to section 14 of Israel’s Severance Pay Law, 1963 (the “Severance Pay Law”)) pay fixed contributions to those\nplans and will have no legal or constructive obligation to pay further contributions if the fund into which those contributions are paid\ndoes not hold sufficient amounts to pay all employee benefits relating to employee service\nin the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized\nas an expense when contributed concurrently with performance of the employee’s services.\n\n \n\nF-43\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n22)Employee benefit liabilities (Cont.):\n\n \n\nFormula and its Israeli\nsubsidiaries and companies accounted for at equity also operate a defined benefit plan in respect of severance or retirement pay to their\nIsraeli employees pursuant to the Severance Pay Law. According to the Severance Pay Law, employees are entitled to severance pay upon\ndismissal or retirement. The liability for termination of employment is measured using the projected unit credit method. The actuarial\nassumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented\nbased on discounted expected future cash flows using a discount rate determined by reference to market yields at the reporting date on\nhigh quality corporate bonds that are linked to Israel’s Consumer Price Index with a term that is consistent with the estimated\nterm of the severance pay obligation. In respect of its severance pay obligation to certain of its employees, the Group makes current\ndeposits in pension funds and insurance companies (the “plan assets”). Plan assets comprise assets held by a long-term employee\nbenefit fund or qualifying insurance policies. Plan assets are not available to the Group’s own creditors and cannot be returned\ndirectly to the Group.\n\n \n\nThe liability for\nemployee benefits shown in the statement of financial position reflects the present value of the defined benefit obligation, less the\nfair value of the plan assets. Remeasurements of the net liability are recognized in other comprehensive income in the period in which\nthey occur.\n\n \n\nSeverance expenses\nfor the years 2025, 2024 and 2023 were $53,972, $53,228 and $47,076, respectively.\n\n \n\niii.Other long-term employee benefits:\n\n \n\nCertain employees\nof the Group are entitled to benefits in respect of adaptation grants. These benefits are accounted for as other long-term benefits since\nthe Group estimates that these benefits will be utilized and the Group’s respective obligation will be settled during the employment\nperiod and more than twelve months after the end of the annual reporting period in which the employees rendered the related service.\n\n \n\nThe Group’s\nnet obligation for other long-term employee benefits, which is computed based on actuarial assumptions, is for the future benefit due\nto employees for services rendered in the current period and in prior periods and considering expected salary increases. The amount of\nthese benefits is discounted to its present value. The discount rate is determined by reference at the reporting date to market yields\non high quality corporate bonds that are linked to the Consumer Price Index and whose term is consistent with the term of the Group’s\nobligation.\n\n \n\nRemeasurement of\nthe net obligation is recognized in the statement of comprehensive income in the incurred period.\n\n \n\nF-44\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n23)Share-based payment transactions:\n\n \n\nThe Group’s\nemployees and certain service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The\ncost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The\nfair value is determined using an acceptable option pricing model.\n\n \n\nThe cost of equity-settled\ntransactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance\nand/or service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award (the “vesting\nperiod”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting\ndate reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments\nthat will ultimately vest. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional\nupon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other\nvesting conditions (service and/or performance) are satisfied.\n\n \n\nIf the Group modifies the conditions on which equity instruments were\ngranted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement\nor is otherwise beneficial to the employee/other service provider at the modification date.\n\n \n\nIf a grant of an equity\ninstrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for the grant\nis recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the grant date,\nthe canceled and new grants are accounted for as a modification of the original grant, as described above.\n\n \n\n24)Concentration of credit risk:\n\n \n\nFinancial instruments\nthat potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits,\nrestricted cash, trade receivables.\n\n \n\nThe majority of the\nGroup’s cash and cash equivalents, deposits, and other financial instruments are invested with major banks in Israel, the United\nStates and across Europe. The Group’s management believes that these financial instruments are held in financial institutions with\nhigh credit standing, and accordingly, minimal credit risk exists with respect to these investments. Cash and cash equivalents and short-term\ndeposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these banks deposits\nmay be redeemed upon demand and therefore bear minimal risk.\n\n** **\n\nThe Group’s\ntrade receivables are generally derived from sales to large organizations located mainly in Israel, North America, Europe and Asia Pacific.\nThe Group performs ongoing credit evaluations of its customers using a reliable outside source to determine payment terms and credit limits\nwhich are approved based on the size of the customer and to date has not experienced any material losses. In certain circumstances, Formula\nand its subsidiaries and companies accounted for at equity may require letters of credit, other collateral or additional guarantees.\n\n \n\nF-45\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n24)Concentration of credit risk (Cont.):\n\n** **\n\nThe Group maintains\nan allowance for credit losses based upon management’s experience and estimate of collectability of each outstanding invoice. The\nallowance for credit losses is determined with respect to specific debts or which collection is doubtful. The risk of collection associated\nwith accounts receivable is mitigated by the diversity and number of customers.\n\n \n\n25)Liquidity risk:\n\n \n\nLiquidity risk arises\nfrom managing the Group’s working capital as well as from financial expenses and principal payments of the Group’s debt instruments.\nLiquidity risk consists of the risk that the Group will have difficulty in fulfilling obligations relating to financial liabilities. The\nGroup’s policy is to ascertain constant cash adequacy needed for settling its liabilities when due. For this purpose, the Group\naims to hold cash balances (or adequate credit lines) that will meet anticipated demands.\n\n \n\nFormula and its subsidiaries\nand companies accounted for at equity examine cash flow forecasts on a monthly basis as well as information regarding cash balances. As\nof the reporting date, these forecasts indicate that the Group can expect sufficient liquid sources for covering its entire liabilities\nunder reasonable assumptions.\n\n \n\n26)Non- current assets or disposal group held for sale and discontinued\noperations:\n\n \n\nNon-current assets\nor a disposal group are classified as held for sale if their carrying amount will be recovered principally through a sale transaction\nrather than through continuing use. For this to be the case, the assets must be available for immediate sale in their present condition,\nthe Company must be committed to a sale plan, there must be a program to locate a buyer and it is highly probable that a sale will be\ncompleted within one year from the date of classification.\n\n \n\nBefore these assets\nare classified as available for sale, they are measured in accordance with the Group’s accounting policy. After classification as held\nfor sale, these assets are measured at the lower of their carrying amount and fair value less costs to sell and presented separately in\nthe statement of financial position. From the date of their initial classification, these assets are not depreciated.\n\n \n\nThe Company recognizes\nan impairment loss in respect of an asset or group of assets in accordance with IAS 36. An impairment loss and subsequent remeasurement\ngains or losses are recorded in profit or loss. Gains are recognized up to the cumulative amount of the previously recognized impairment\nloss.\n\n \n\nOther comprehensive\nincome (loss) in respect of an assets or a group of non-current assets that are classified as held for sale is presented separately in\nequity.\n\n \n\nA discontinued operation\nis a component of the Company that represents a separate major line of business operation or geographical area of operations that either\nhas been disposed of or is classified as held for sale. The operating results relating to the discontinued operation (including comparative\ndata) are presented separately in the statement of profit or loss, net of the tax effect. For further information see Note 13 Disposal\ngroup held for sale and discontinued operations.\n\n \n\nF-46\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 2:- ACCOUNTING POLICIES (Cont.)**\n\n \n\n27)Disclosure of Newly Issued but Not Yet Effective IFRS Standards\n\n \n\nIFRS 18 – “Presentation\nand Disclosure in Financial Statements”.\n\n \n\nIn April 2024, the International Accounting\nStandards Board (“the IASB”) issued IFRS 18, “Presentation and Disclosure in Financial Statements” (“IFRS 18”)\nwhich replaces IAS 1, “Presentation of Financial Statements”.\n\n \n\nIFRS 18 is aimed at improving comparability\nand transparency of communication in financial statements.\n\n \n\nIFRS 18 retains certain existing requirements\nof IAS 1 and introduces new requirements on presentation within the statement of profit or loss, including specified totals and subtotals.\nIt also requires disclosure of management-defined performance measures and includes new requirements for aggregation and disaggregation\nof financial information.\n\n \n\nIFRS 18 does not modify the recognition\nand measurement provisions of items in the financial statements. However, since items within the statement of profit or loss must be classified\ninto one of five categories (operating, investing, financing, taxes on income and discontinued operations), it may change the entity’s\noperating profit. Moreover, the publication of IFRS 18 resulted in consequential narrow scope amendments to other accounting standards,\nincluding IAS 7, “Statement of Cash Flows” and IAS 34, “Interim Financial Reporting”.\n\n \n\nIFRS 18 is effective for annual reporting\nperiods beginning on or after January 1, 2027, and is to be applied retrospectively. Early adoption is permitted, subject to disclosure.\n\n \n\nThe Company is evaluating the effects\nof IFRS 18, including the effects of the consequential amendments to other accounting standards, on its consolidated financial statements.\n\n \n\n28)Certain amounts in the prior years’ financial statements\nhave been reclassified to conform to the current year’s presentation.\n\n \n\nF-47\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS**\n\n** **\n\ni.Magic Software\n\n \n\na.Acquisition of Expim Ltd. (“Expim”)\n\n \n\nOn March 18, 2025, Magic Software, through its subsidiary acquired\n100% of all issued and outstanding share capital of Expim Ltd. (“Expim”), an Israel-based provider of managed cloud services,\nnetwork connectivity, cybersecurity solutions, and IT infrastructure support. Total purchase price consideration amounted to $4,995, consisting\nof a base purchase price of $4,168, or $3,614 net of acquired cash, and contingent consideration with a fair value of $827. The fair value\nof the consideration was determined in accordance with IFRS 3 and measured as of the acquisition date.\n\n \n\nThe results of operations\nwere included in the consolidated financial statements of the Company commencing January 1, 2025. Acquisition-related costs were immaterial.\nUnaudited pro forma condensed results of operations were not presented as they were not material to the Company’s consolidated statement\nof profit or loss.\n\n \n\nThe following table\nsummarizes the provisional estimated fair values allocated to the Expim acquired assets and assumed liabilities, with reference to the\nacquisition as of the acquisition date:\n\n \n\nNet liabilities excluding cash acquired \n$(634)\n\nIntangible assets \n 1,525 \n\nGoodwill \n 3,550 \n\nLiabilities in respect of business combinations \n (827)\n\n  \n   \n\nTotal assets acquired net of acquired cash \n$3,614 \n\n \n\nb.Additional shares of CommIT Technology Solutions Ltd.\n(“CommIT”)\n\n \n\nIn April 2025 Magic\nSoftware completed a transaction to acquire additional ordinary shares of its subsidiary CommIT Technology Solutions Ltd. for NIS 50.2\nmillion (approximately $13.8 million), increasing its holdings (on a fully diluted basis) from 68.15% to 79.32%.\n\n \n\nc.Acquisition of Savanna Solutions Ltd. (“Savanna”)\n\n \n\nOn December 1, 2025,\nCommIT Software Ltd and 9540 Y.G. Soft I.T Ltd., both subsidiaries of Magic Software, acquired on the aggregate 75% of the outstanding\nshare capital of Savanna Solutions Ltd . (“Savana”), an offshore technology services provider offering software development,\nIT consulting, and engineering services, including application development, cloud services, and support for digital transformation initiatives.\nTotal purchase price consideration amounted to $1,631, consisting of a cash consideration paid upon closing of $919, or $241 net of acquired\ncash, a deferred payment of $230 due six month following the closing and a contingent consideration with a fair value of $482. The additional\nconsideration is contingent upon Savanna reaching certain operational targets from 2025 to 2027. The fair value of the consideration was\ndetermined in accordance with IFRS 3 and measured as of the acquisition date. The results of operations have been included in the consolidated\nfinancial statements of the Company commencing December 1, 2025. Acquisition-related costs were immaterial. Unaudited pro forma condensed\nresults of operations were not presented as they were not material to the Company’s consolidated statement of profit or loss.\n\n \n\nF-48\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS\nCOMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nThe following table\nsummarizes the provisional estimated fair values allocated to the Savana acquired assets and assumed liabilities, with reference to the\nacquisition as of the acquisition date:\n\n \n\nNet liabilities excluding cash acquired \n$(496)\n\nIntangible assets \n 446 \n\nGoodwill \n 1,160 \n\nNon-controlling interests \n (157)\n\nLiabilities in respect of business combinations \n (712)\n\n  \n   \n\nTotal assets acquired net of acquired cash \n$241 \n\n \n\nd.Acquisition of Theoris Group Inc. (“Theoris”)\n\n \n\nOn April 4, 2024, Magic Software, through\nits wholly owned subsidiary, CoreTech Consulting Group LLC, completed the acquisition of all issued and outstanding share capital of Theoris\nGroup Inc. (“Theoris”). Theoris is a U.S.-based provider of information technology and engineering consulting services, specializing\nin strategic data management, analytics, application development, cloud solutions, and the recruitment of technical personnel. Total consideration\namounted to $13,096 (or $10,249 net of acquired cash), comprised of: a base purchase price of $10,000, a deferred working capital adjustment\npayment of $840 (of which $535 was paid on the acquisition date), and additional deferred payments totaling $2,256. The fair value of\nthe consideration transferred was measured as of the acquisition date in accordance with the principles of IFRS 3 – Business Combinations.\n\n \n\nThe results of operations were included in the consolidated financial\nstatements of the Company commencing April 1, 2024. Acquisition related costs were im`material. Unaudited pro forma condensed results\nof operations were not presented since they were not material to the Company’s consolidated statement of profit or loss.\n\n \n\nNet assets excluding cash acquired \n$2,321 \n\nIntangible assets \n 5,205 \n\nGoodwill \n 5,284 \n\nLiabilities in respect of business combinations \n (2,561)\n\n  \n   \n\nTotal assets acquired net of acquired cash \n$10,249 \n\n \n\ne.Acquisition of Executive Life Ltd. (“Executive”)\n\n \n\nOn October 31, 2024, Magic Software, through its subsidiary CoreTech\nConsulting Group LLC, acquired all outstanding share capital of Executive Life Ltd. (“Executive”), a U.S.-based recruitment\nfirm headquartered in Long Island, New York. Executive specializes in executive recruitment services across various industries, including\nconstruction, IT, marketing, accounting, finance, and manufacturing engineering. Executive was acquired for a total consideration of $1,472\ncomprising of a base purchase price of $800, or $644 net of acquired cash, and a deferred payment of $672, payable one year following\nthe acquisition date.\n\n \n\nThe fair value of\nthe consideration was determined in accordance with IFRS 3 and measured as of the acquisition date. The acquisition strengthens Magic’s\ntalent acquisition capabilities and broadens its consulting and professional service offerings in the U.S. market.\n\n** **\n\nF-49\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS\nCOMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nThe results of operations\nof Executive Life Ltd. were included in the consolidated financial statements of the Company commencing November 1, 2024. Acquisition-related\ncosts were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company’s\nconsolidated statement of profit or loss.\n\n \n\nThe following table\nsummarizes the fair values allocated to the Executive acquired assets and assumed liabilities, with reference to the acquisition as of\nthe acquisition date:\n\n \n\nNet assets excluding cash acquired \n$244 \n\nIntangible assets \n 229 \n\nGoodwill \n 843 \n\nLiabilities in respect of business combinations \n (672)\n\n  \n   \n\nTotal assets acquired net of acquired cash \n$644 \n\n \n\nf.Acquisition of nursing care business (“Adam Nursing”)\n\n \n\nOn July 3, 2024, Magic Software, through its subsidiary Minerva Ltd.\n(“Minerva”), entered into an Asset Purchase Agreement to acquire an operating activity of a nursing care business (“Adam\nNursing”). The acquisition meets the definition of a business under IFRS 3, and was therefore accounted for as a business combination\nusing the acquisition method. The total consideration paid for the acquisition was $1,596.\n\n \n\nThe following table\nsummarizes the estimated fair values of the identifiable assets acquired at the acquisition date:\n\n \n\nCustomer relationships \n$529 \n\nTechnology \n 309 \n\nGoodwill \n 758 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,596 \n\n \n\nii.Matrix\n\n \n\na.Acquisition of Gav Group\n\n \n\nOn February 4, 2025,\nMatrix, through its subsidiary Matrix I.T. Systems Ltd., completed the acquisition of 70% of the issued and paid-up share capital of Gav\nSystems Ltd. and Gav Expert Ltd. (collectively, the “Gav Group”), which provides outsourcing services, primarily in the field\nof IT and software personnel, for total consideration of NIS 74.5 million (approximately $20,822) or NIS 65.3 million (approximately $18,268)\nnet of acquired cash. Total consideration is divided into NIS 45.5 million (approximately $12,717) paid in cash, and a dividend in respect\nof retained earnings as of December 31, 2023, in the amount of NIS 29 million (approximately $8,105). Pursuant to the agreement, Matrix\nand the sellers hold reciprocal call and put options with respect to the remaining shares held by the sellers.\n\n \n\nF-50\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS\nCOMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nAs of the reporting\ndate, the purchase price allocation (“PPA”) has not yet been finalized. Accordingly, the allocation of the purchase consideration\nto the identifiable assets acquired and liabilities assumed is provisional, based on management’s estimates, and may be adjusted\nin subsequent reporting periods upon completion of the valuation. Based on the provisional allocation, the excess of the purchase consideration\nover the net identifiable assets acquired amounted to NIS 51.2 million (approximately $14,314), of which NIS 16.7 million (approximately\n$4,662) was attributed to identifiable intangible assets, and the remaining amount was attributed to goodwill.\n\n \n\nThe following table\nsummarizes the provisional estimated fair values allocated to the Gav Group acquired assets and assumed liabilities, with reference to\nthe acquisition as of the acquisition date:\n\n \n\nNet assets excluding cash acquired \n$4,348 \n\nIntangible assets \n 6,055 \n\nDeferred taxes \n (473)\n\nNon-controlling interests \n (1,314)\n\nGoodwill \n 9,652 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$18,268 \n\n \n\nb.Acquisition of Alacer Matrix LLC (“Alacer”)\n\n \n\nOn November 13,\n2024, Matrix, through its subsidiary Matrix US Holding LLC, completed the acquisition of 51% of outstanding share capital of Alacer\nMatrix LLC (former: Alacer Group), which specializes in advisory services and the provision of experts in the field of governance,\nregulation & compliance within the U.S. financial market, for approximately $1,950 in cash, and additional contingent\nconsideration based on Alacer’s future performance over the next three years. In addition, Matrix holds a call option to acquire the\nremaining outstanding share capital of Alacer.\n\n \n\nBased on the valuation underlying the purchase price allocation (PPA),\napproximately $0.8 million of the approximately $2.3 million excess purchase price was attributed to intangible assets, and the remaining\nbalance was attributed to goodwill.\n\n \n\nThe following table\nsummarizes the fair values allocated to the Alacer acquired assets and assumed liabilities, with reference to the acquisition as of the\nacquisition date:\n\n \n\nNet assets excluding cash acquired \n$100 \n\nIntangible assets \n 555 \n\nDeferred taxes \n (150)\n\nNon-controlling interests \n (254)\n\nGoodwill \n 1,699 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,950 \n\n \n\nF-51\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nc.Acquisition of Moshe Ort Ltd. (“Ortech”)\n\n \n\nOn December 3, 2024,\nMatrix, through its subsidiary Matrix IT Integration and Infrastructure, acquired all of Moshe Ort Ltd. (Ortech) outstanding share capital\nfor approximately NIS 19,495 thousand in cash (approximately $5,365), or NIS 10,026 thousand (approximately $2,759) net of acquired cash,\ntogether with an additional contingent consideration based on Ortech’s future financial performance.\nIn addition, Matrix holds a call option to acquire the remaining outstanding share capital of Ortech.\n\n \n\nOrtech imports, distributes,\nsells, and provides support and specification services for automated manufacturing machines for component assembly and automated inspection\nmachines for assembly processes and components on production lines. Ortech operates in the fields of industrial, medical, and military\nequipment, lasers and sensors for civilian and defense applications, optical communication systems, and automotive radar systems. Ortech\nalso serves as a representative in Israel for dozens of international manufacturers.\n\n \n\nBased on the valuation\nunderlying the purchase price allocation (PPA), NIS 13.3 million (approximately $3,954) of the NIS 39.3 million (approximately $11,685)\nexcess purchase price was attributed to intangible assets, and the remaining balance was attributed to goodwill.\n\n \n\nThe following table\nsummarizes the fair values allocated to the Ortech acquired assets and assumed liabilities, with reference to the acquisition as of the\nacquisition date:\n\n \n\nNet liabilities excluding cash acquired \n$(118)\n\nIntangible assets \n 3,187 \n\nDeferred taxes \n (733)\n\nLiabilities in respect of business combinations \n (7,745)\n\nGoodwill \n 8,168 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$2,759 \n\n \n\niii.Michpal\n\n \n\na.Formally’s put option\n\n \n\nOn March 30, 2025,\nfollowing the exercise of a put option, Michpal acquired the remaining 30% outstanding share capital of Formally – Smart Forms Systems\nLtd (“Formally”), thereby increasing its ownership to 100% of Formally’s outstanding share capital. The total purchase\nconsideration amounted to approximately NIS 28,200 thousand (approximately $7,655).\n\n \n\nb.Acquisition of Mishmarot Technologies Ltd. (“Mishmarot”)\n\n \n\nOn July 15, 2025,\nMichpal completed the acquisition of 70% of the outstanding share capital of Mishmarot Technologies Ltd. Ltd. (hereinafter – “Mishmarot”), a developer and provider of an advanced technology solution for automated workforce scheduling based on artificial intelligence\nalgorithms, tailored to organizational needs and employees, as well as complementary solutions based on customer requirements.\n\n \n\nF-52\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nIn consideration\nfor the acquired shares, the Company paid cash consideration of NIS 19,543 thousand (approximately $5,842) or NIS 16,886 thousand (approximately\n$5,048) net of acquired cash, and committed to pay additional contingent consideration to the sellers in 2027, subject to achieving certain\nperformance targets based on Mishmarot’s operating results for the year 2026 (hereinafter – the “Contingent Consideration”).\nThe fair value of the Contingent Consideration liability as of the acquisition date was estimated at approximately NIS 2,137 thousand\n(approximately $639), determined using a discounted cash flow approach. As of December 31, 2025, the outstanding liability in respect\nof the contingent consideration amounted to approximately NIS 2,217 thousand (approximately $695). During 2025, the Company recognized\nincome of approximately NIS 190 thousand (approximately $55) resulting from working capital adjustments, which was included under other\nexpenses (income), net, in the statement of profit or loss. In addition, pursuant to the agreement, Michpal and the sellers hold call\nand put options, respectively, with respect to the remaining shares held by the sellers in Mishmarot. The options are exercisable during\nthe years 2028 through 2030, within a 60-day period following the approval of Mishmarot’s audited financial statements for the preceding\ncalendar year. The exercise price is determined based on a mechanism set forth in the agreement, which is linked to Mishmarot’s\noperating results for the preceding calendar year. As of December 31, 2025, the outstanding financial liability in respect of the put\noption amounted to NIS 8,448 thousand (approximately $2,648). In the Company’s assessment, the put options granted to the sellers\nwith respect to their remaining shareholdings do not confer present ownership over such interests. The results of operations have been\nfully consolidated in the Company’s financial statements commencing July 15, 2025. Acquisition-related costs amounted to approximately\nNIS 292 thousand (approximately $85).\n\n \n\nThe Company recognized\nthe fair value of the identifiable assets acquired and liabilities assumed in the business combination based on a valuation performed\nby an external valuation expert, using a discounted cash flow methodology. The following table summarizes the estimated fair values of\nthe identifiable assets and liabilities of Mishmarot as of the acquisition date:\n\n \n\nNet Assets excluding cash acquired \n$543 \n\nIntangible assets \n 4,930 \n\nDeferred taxes \n (1,110)\n\nDividend payable to sellers \n (1,300)\n\nNon-controlling interests \n (1,177)\n\nGoodwill \n 3,801 \n\nLiabilities in respect of business combinations \n (639)\n\n  \n   \n\nTotal assets acquired net of acquired cash \n$5,048 \n\n \n\nc.Disposal of a Subsidiary and Acquisition of Non-Controlling\nInterests\n\n \n\nDuring the\nthird quarter of 2025, Michpal completed a share exchange\ntransaction (the “Share Exchange Transaction”), pursuant to which the Company transferred all of its shares in Effective\nSolutions Ltd. (hereinafter – “Effective Solutions”), representing 80% of its issued and paid-up share capital, to\nthe non-controlling shareholder thereof (hereinafter – the “Minority Shareholder”). Concurrently, all of the\nshares of Kol Hames Ltd. (hereinafter – “Kol Hames”), which were held by Effective Solutions and represented 65%\nof its issued and paid-up share capital, were transferred to Michpal.\n\n \n\nF-53\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nEffective Solutions\nis engaged in consulting services. Kol Hames is engaged in payroll accounting and bookkeeping training, operates a college offering seminars,\nprofessional courses and continuing education programs, and provides pension administration and outsourced payroll services. In addition,\nit was agreed that the “Michpal Yeda” activity, previously operated by Effective Solutions, would be fully transferred to\nMichpal. As part of the Share Exchange Transaction, Effective Solutions declared a dividend. In addition, the Company paid Effective Solutions\ncash consideration in the amount of NIS 1,300 thousand (approximately $386), which was settled in October 2025. Michpal’s share\nof the declared dividend, in the amount of NIS 481 thousand (approximately $143), is expected to be received within one year from the\ncompletion of the transaction. The total consideration attributed to the disposal of the shares amounted to NIS 4,415 thousand (approximately\n$1,310) and the total cash consideration attributed to the disposal of the shares amounted to NIS 3,318 thousand (approximately $985).\nAs a result of the transaction, the call and put options previously granted to Michpal and to the non-controlling shareholder in respect\nof the remaining holdings in Effective Solutions were terminated. Following the Share Exchange Transaction and the loss of control in\nEffective Solutions, Michpal deconsolidated Effective Solutions and derecognized all of its assets and liabilities from the consolidated\nstatement of financial position as of July 1, 2025. Accordingly, the results of operations of Effective Solutions are not included in\nthe Company’s consolidated statement of profit or loss from that date. Michpal recognized a loss on deconsolidation of NIS 2,649\nthousand (approximately $786). In respect of the change in non-controlling interests in Kol Hames, the Company recognized an amount of\nNIS 5,028 thousand (approximately $1,492) in equity, within capital reserve from transactions with non-controlling interests.\n\n \n\nThe following table\nsummarizes the estimated fair values of the identifiable consideration attributed to the Disposal of a Subsidiary and Acquisition of Non-Controlling\nInterests as of the acquisition date:\n\n \n\nNet liabilities excluding cash acquired \n (1,793)\n\nDerecognition of non-controlling interests \n 500 \n\nLoss on disposal and deconsolidation of a subsidiary \n 786 \n\nCapital reserve from transactions with non-controlling interests \n 1,492 \n\n  \n   \n\nTotal Share Exchange Transaction acquired net of acquired cash \n$985 \n\n** **\n\nF-54\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nd.Acquisition of Linkatch Ltd. (“Linkatch”)\n\n \n\nOn November 30, 2025,\nMichpal completed the acquisition of 60% of the outstanding share capital of Linkatch Ltd. (hereinafter – “Linkatch”),\na developer and provider of a secure cloud-based platform for candidate sourcing through online communities and various digital channels.\n\n \n\nIn consideration\nfor the acquired shares, Michpal paid cash consideration of NIS 1,125 thousand (approximately $336), and committed to pay additional contingent\nconsideration in 2029, subject to achieving certain performance targets based on Linkatch’s operating results for the years 2027–2028\n(hereinafter – the “Contingent Consideration”). The fair value of the contingent consideration liability as of the acquisition\ndate, and as of December 31, 2025, amounted to NIS 850 thousand (approximately $254).\n\n \n\nIn addition, Michpal\nand the minority shareholder of Linkatch hold call and put options, respectively, with respect to the remaining shares held by the minority\nshareholder. The options are exercisable during the years 2030 through 2032. The exercise price is determined based on a mechanism set\nforth in the agreement, linked to Linkatch’s operating results for the preceding calendar year. As of December 31, 2025, the outstanding\nfinancial liability in respect of the put option amounted to NIS 1,645 thousand (approximately $492).\n\n \n\nThe results of operations\nwill be fully consolidated in the Company’s financial statements commencing January 1, 2026.\n\n \n\ne.Liram’s put option\n\n \n\nOn February 19, 2024,\nfollowing the exercise of a put option, Michpal acquired the remaining 30% outstanding share capital of Liram, thereby increasing its\nownership to 100% of Liram’s outstanding share capital. The total purchase consideration amounted to approximately NIS 5,250 thousand\n(approximately $1,449), of which NIS 1,000 thousand (approximately $276) was prepaid to the seller on 2023.\n\n \n\nf.Acquisition of Heshev Information Systems (2012) Ltd. (“Heshev”)\n\n \n\nOn January 1, 2024,\nMichpal acquired 70% of Heshev Information Systems (2012) Ltd. Outstanding share capital for a total consideration of NIS 4,800 thousand\n(approximately $1,338) paid in cash, or NIS 4,605 thousand (approximately $1,285) net of acquired cash. Heshev develops and markets a\ncloud-native technology platform for managing financial and business operations for accountants, tax consultants, payroll managers, bookkeepers,\nand financial controllers. The platform includes, among other features, fixed asset management, preparation and submission of financial\nreports, as well as advanced tools for performing financial simulations and payroll calculations. Additionally, Heshev provides an online\nplatform that enables its clients to manage their financial and business activities entirely digitally, utilizing advanced cloud technologies\nand providing access to up-to-date professional information. Michpal and the seller hold a mutual call and put options, respectively,\nfor the remaining 30% share interest held by the seller in Heshev. These options can be exercised during a consecutive three-year period\ncommencing five years from the acquisition date, at an exercise price determined by a mechanism specified in the agreement.\n\n \n\nF-55\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nAcquisition**-**related\ncosts were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company’s\nconsolidated statement of profit or loss. Heshev’s results of operations were included in the consolidated financial statements\nof the Company commencing January 1, 2024.\n\n \n\nThe following table\nsummarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition\ndate:\n\n \n\nNet liabilities excluding cash acquired \n$(110)\n\nIntangible assets \n 1,731 \n\nDeferred taxes \n (388)\n\nNon-controlling interests \n (386)\n\nGoodwill \n 438 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,285 \n\n \n\ng.Acquisition of Meida Computers Software Solutions (G.D)\nLtd. (“Meida”)\n\n \n\nOn July 3, 2024,\nMichpal acquired 60% of the shares of Meida Computers Software Solutions (G.D) Ltd, for a total consideration of NIS 47,000 thousand (approximately\n$12,490) or NIS 37,131 thousand (approximately $9,867), net of acquired cash, and up to additional NIS 3,000 thousand (approximately $797)\nin contingent consideration, subject to the achievement of targets set in relation to Meida’s operating profit for the year 2024\n(hereinafter – the “Contingent Consideration”). Meida engaged in the development and marketing of advanced solutions for\nrecruitment and human resources management processes. Meida develops and markets “Adam Total,” the leading platform for candidate\nrecruitment and screening, which integrates artificial intelligence technologies for candidate sourcing and matching, as well as advanced\nanalytical tools for performance analysis and data-driven decision-making. No liability was recognized in respect of the contingent consideration.\nIn addition, the performance targets specified in the agreement were not achieved, and accordingly, no contingent consideration was paid.\nMichpal and the seller hold a mutual call and put options, respectively, for the remaining 40% share interest held by the seller in Meida.\nThe put options may be exercised in 2028 (with respect to 50% of the seller’s shares) and in 2030 (with respect to all or the remaining\nshares of the seller). The call options may be exercised in 2029 (with respect to 50% of the seller’s shares or any remaining portion\nthereof) and in 2031 (with respect to all or the remaining shares of the seller). The exercise price for the call and put options is determined\nbased on a mechanism set forth in the agreement. The balance of the financial liability in respect of the put option in the statement\nof financial position as of December 31, 2025 amounted to NIS 36,713 thousand (approximately $11,509).\n\n \n\nAcquisition**-**related\ncosts were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company’s\nconsolidated statement of profit or loss. Meida’s results of operations were included in the consolidated financial statements of\nthe Company commencing July 3, 2024.\n\n** **\n\nF-56\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nThe following table\nsummarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition\ndate:\n\n \n\nNet liabilities excluding cash acquired \n$(2,254)\n\nIntangible assets \n 9,082 \n\nDeferred taxes \n (2,031)\n\nNon-controlling interests \n (2,968)\n\nGoodwill \n 8,038 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$9,867 \n\n \n\nh.Acquisition of Y-IT Ltd. (“Y-IT”)\n\n \n\nOn October 13,\n2024, Michpal acquired 60% of the outstanding share capital of Y-IT, for a total consideration of NIS 82,523 thousand (approximately\n$22,243) or NIS 70,268 thousand (approximately $18,940) net of acquired cash, and committed to pay the seller additional contingent\nconsideration subject to Y-IT’s operating profit for the year 2024 (hereinafter – the “Contingent\nConsideration”). Y-IT engaged in the development and marketing of a technology platform for managing and optimizing\ntransportation operations and vehicle fleets for companies in the transportation sector. The platform is based on algorithms and\nautomation processes, monitoring tools, attendance data processing and preliminary payroll calculations, advanced financial\nmanagement tools tailored for the transportation sector, as well as analytical tools for performance management and operational\noptimization. Y-IT serves over 550 clients in the Israeli transportation industry.\nAs of the acquisition date, Michpal recognized a liability for the contingent consideration in the amount of NIS 6,496 thousand\n(approximately $1,751). During 2025, the final amount of the\ncontingent consideration was determined based on Y-IT’s results for 2024, in the amount of NIS 6,482 thousand (approximately\n$1,857 thousand), and was paid to the seller during the year. Additionally, Michpal and seller hold a mutual call and put options,\nrespectively, for the remaining 40% share interest held by the seller in Y-IT. The exercise price for the call and put options is\ndetermined based on a mechanism set forth in the agreement. The balance of the financial liability in respect of the put option in\nthe statement of financial position as of December 31, 2025 amounted to NIS 70,516 thousand (approximately $22,105).\n\n \n\nAcquisition**-**related\ncosts were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company’s\nconsolidated statement of profit or loss. Y-IT’s results of operations were included in the consolidated financial statements of\nthe Company commencing October 13, 2024.\n\n \n\nThe following table\nsummarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition\ndate:\n\n \n\nNet liabilities excluding cash acquired \n$(2,193)\n\nIntangible assets \n 17,264 \n\nDeferred taxes \n (3,971)\n\nNon-controlling interests \n (5,739)\n\nLiabilities in respect of business combinations \n (1,751)\n\nGoodwill \n 15,330 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$18,940 \n\n \n\nF-57\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\ni.Acquisition of Paperless Ltd. (“Paperless”)\n\n \n\nOn December 24, 2024,\nMichpal acquired 70% of the outstanding share capital of Paperless, for a total consideration of NIS 8,500 thousand (approximately $2,331)\nor NIS 6,909 thousand (approximately $1,894) net of acquired cash (of which NIS 2,805 thousand (approximately $769) was paid in January\n2025, and committed to pay the seller additional contingent consideration subject to Paperless’ operating profit for the years 2024\nthrough 2026 (hereinafter – the “Contingent Consideration”). During 2025, Michpal paid the seller an amount of NIS 1,063\nthousand (approximately $308) on account of the contingent consideration. Paperless is the developer of the cloud-based Paperless platform\nfor digital and online paperless accounting management. The platform is designed for finance professionals, accountants, and tax advisors,\nand integrates advanced technologies for the automation of accounting processes, including digital invoice processing and automatic journal\nentry recording. The platform helps its clients improve the efficiency, convenience, and reliability of their financial reporting processes.\n\n \n\nThe fair value of\nthe contingent consideration liability as of December 31, 2025, amounted to NIS 22,954 thousand (approximately $7,196).\n\n \n\nAdditionally, Michpal and seller hold mutual call and put options,\nrespectively, for the remaining 30% share interest held by the seller in Paperless. The exercise price of the options is determined based\non a mechanism set forth in the agreement. As of December 31, 2025, the outstanding financial liability for the put option, amounted to\nNIS 16,061 thousand (approximately $5,035). Acquisition**-**related costs were immaterial. Unaudited pro forma condensed results of\noperations were not presented since they were not material to the Company’s consolidated statement of profit or loss. Paperless’\nresults of operations were included in the consolidated financial statements of the Company commencing December 31, 2024.\n\n \n\nThe following table\nsummarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition\ndate:\n\n \n\nNet assets excluding cash acquired \n$91 \n\nIntangible assets \n 7,682 \n\nDeferred taxes \n (1,767)\n\nNon-controlling interests \n (1,933)\n\nLiabilities in respect of business combinations \n (5,867)\n\nGoodwill \n 2,919 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,125 \n\n \n\niv.Formula\n\n \n\na.On October 31, 2025, Formula Infrastructure (a directly held\nsubsidiary) acquired 60% of the outstanding share capital of Advance Engineering Ltd (“Advance”), for a total consideration\nof NIS 20,090 thousand (approximately $6,195) or NIS 12,256 thousand (approximately $3,779) net of acquired cash (of which NIS 17,901\nthousand (approximately $5,520) was paid in cash, and committed to pay the seller additional contingent consideration subject to Advances’\noperating profit for the years 2023 through 2025 (hereinafter – the “Contingent Consideration”).\n\n \n\nF-58\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 3:- BUSINESS COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)**\n\n \n\nAdvance specializes in multi-disciplinary quality management (QA/QC),\nfield inspection, and design management in wide range of construction projects, which include civil, infrastructures, electrical and mechanical\nprocess disciplines. As of the acquisition date, the Company recognized a liability for the contingent consideration in the amount of\napproximately NIS 2,188 thousand (approximately $675) .Additionally, Formula Infrastructure and seller hold mutual call and put options,\nrespectively, for the remaining 40% share interest held by the seller in Paperless. The exercise price of the options is determined based\non a mechanism set forth in the agreement. As of December 31, 2025, the outstanding financial liability for the put option, as reported\nin the statement of financial position, amounted to NIS 22,868 thousand (approximately $7,169). Acquisition**-**related costs were\nimmaterial.\n\n \n\nThe following table\nsummarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition\ndate:\n\n \n\nNet assets excluding cash acquired \n$(1,039)\n\nIntangible assets \n 2,588 \n\nDeferred taxes \n (533)\n\nNon-controlling interests \n (2,051)\n\nLiabilities in respect of business combinations \n (675)\n\nGoodwill \n 3,118 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,408 \n\n \n\nb.On March 31, 2024 Ofek (a directly held subsidiary) acquired 100% of the outstanding share capital of Yona Engineering Consulting & Management Ltd (“Yona”), On October 1, 2024 the Company acquired 51% of the outstanding share capital of Hashahar Telecom and Electricity Ltd (“Hashahar”). The acquisition of both Yona and Hashahar individually and in the aggregate, was not material. The aggregate consideration paid for the acquisition of both Yona and Hashahar was $1,282. Acquisition related costs were immaterial. Yona’s and Hashahar’s results of operations were included in the consolidated financial statements of the Company since their respective acquisition dates.\n\n ** **\n\nNet liabilities excluding cash acquired \n 552 \n\nIntangible assets \n 3,020 \n\nDeferred taxes \n (695)\n\nLiabilities in respect of business combinations \n (2,214)\n\nNon-controlling interests \n (1,173)\n\nGoodwill \n 1,792 \n\n  \n   \n\nTotal assets acquired net of acquired cash \n$1,282 \n\n** **\n\nF-59\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n \n\n**NOTE 4:- CASH AND CASH EQUIVALENTS**\n\n** **\n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nBalance nominated in USD \n$920,197  \n$250,840 \n\nBalance nominated in NIS \n 340,984  \n 179,066 \n\nBalance nominated in other currencies \n 18,940  \n 77,893 \n\n  \n$1,280,121  \n$507,799 \n\n** **\n\n**NOTE 5:- TRADE\nRECEIVABLES, NET**\n\n** **\n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nOpen accounts \n$585,033  \n$610,127 \n\nChecks receivable \n 15,538  \n 14,991 \n\nCurrent maturities of long-term receivables \n 188,842  \n 196,223 \n\n  \n 789,413  \n 821,341 \n\nLess - Expected credit losses (*) \n 14,942  \n 18,106 \n\n  \n    \n   \n\nTrade receivables, net \n$774,471  \n$803,235 \n\n** **\n\n(*)Expected credit losses, net for the years ended December\n31, 2025, 2024 and 2023 were $ 3,547, $4,499 and $4,532 , respectively.\n\n** **\n\n**NOTE 6:- PREPAID\nEXPESNES AND OTHER ACCOUNTS RECEIVAVABLE**\n\n \n\nThe following table summarizes\nthe composition of the Group’s prepaid expenses and other accounts receivable:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nPrepaid expenses and advances to suppliers \n$44,228  \n$47,997 \n\nGovernment authorities \n 28,859  \n 34,414 \n\nEmployees \n 281  \n 367 \n\nRelated Parties (see Note 18) \n 264  \n 213 \n\nOthers \n 6,972  \n 6,891 \n\n  \n$80,604  \n$89,882 \n\n \n\nNote 7:- long-term\ninvestments and receivables\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nPrepaid expenses and deposits \n$26,121  \n$16,658 \n\nInvestments in financial assets designated at fair value through other comprehensive income \n 20,391  \n 21,208 \n\nTrade receivables and unbilled receivables \n 102  \n 7,916 \n\nDividend preference derivative in TSG (see Note 9) \n 3,512  \n 3,652 \n\nOthers \n \n-\n  \n 494 \n\n  \n$50,126  \n$49,928 \n\n** **\n\nF-60\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S. dollars in thousands, except share and\nper share data**\n\n \n\nNote 8:- Fair value\nmeasurement\n\n \n\nIn determining fair value, the\nGroup utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent\npossible and considers counterparty credit risk in its assessment of fair value.\n\n \n\nThe Group’s financial\nassets and liabilities measured at fair value on a recurring basis, including accrued interest components, consisted of the following\ntypes of instruments as of December 31, 2025 and 2024:\n\n \n\n  \nFair value measurements \n\n  \nDecember 31, 2025 \n\n  \nLevel 1  \nLevel 3  \nTotal \n\nAssets: \n   \n   \n  \n\nFinancial assets measured at fair value through other comprehensive income \n$20,120  \n$272  \n$20,392 \n\nFinancial assets measured at fair value through profit or loss \n 2,196  \n 304,549  \n 306,745 \n\nAssets in respect of business combinations \n \n-\n  \n 4,255  \n 4,255 \n\n  \n    \n    \n   \n\n  \n$22,316  \n$309,076  \n$331,392 \n\n \n\n  \nFair value measurements \n\n  \nDecember 31, 2025 \n\n  \nLevel 3  \nTotal \n\nLiabilities: \n   \n  \n\nPut options of non-controlling interests \n$122,783  \n$122,783 \n\nLiabilities in respect of business combination \n 15,661  \n 15,661 \n\n  \n$138,444  \n$138,444 \n\n \n\n  \nFair value measurements \n\n  \nDecember 31, 2024 \n\n  \nLevel 1  \nLevel 3  \nTotal \n\nAssets: \n   \n   \n  \n\nFinancial assets measured at fair value through other comprehensive income \n$20,923  \n$285  \n$21,208 \n\nFinancial assets measured at fair value through profit or loss \n 1,746* \n 4,701* \n 6,447 \n\nDividend preference in TSG (1) \n \n-\n  \n 3,652  \n 3,652 \n\nAssets in respect of business combinations \n \n-\n  \n 2,654  \n 2,654 \n\n  \n    \n    \n   \n\n  \n$22,669  \n$11,292  \n$33,961 \n\n \n\n(*) Reclassified\n\n \n\n  \nFair value measurements \n\n  \nDecember 31, 2024 \n\n  \nLevel 3  \nTotal \n\nLiabilities: \n   \n  \n\nPut options of non-controlling interests \n$82,973  \n$82,973 \n\nLiabilities in respect of business combination \n$17,942  \n$17,942 \n\n  \n    \n   \n\n  \n$100,915  \n$100,915 \n\n \n\n(1)The amount derived in respect of the dividend from TSG Ltd. is presented in accordance with the amount\ndetermined in the shareholders’ agreement prior to the company’s initial public offering held on August 1, 2024, as detailed in\nNote 9 below.\n\n  \n\nF-61\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n  \n\nNOTES TO THE\nCONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S. dollars in thousands, except share and\nper share data**\n\n \n\nNote 8:- Fair\nvalue measurement (Cont.)\n\n  \n\nThe Group believes that the carrying amount of\ncash, short-term deposits, trade receivables, trade payables, overdrafts, deferred payments in respect of business combinations and other current liabilities approximate their fair value due\nto the short-term maturities of these instruments.\n\n \n\nChanges in financial assets and liabilities classified\nin Level 3:\n\n \n\n  \nFinancial\nassets\nmeasured at\nfair value  \nFinancial\nLiabilities\nmeasured at\nfair value \n\nBalance as of January 1, 2024: \n$9,275  \n$68,443 \n\nIncrease due to acquisitions \n \n-\n  \n 37,678 \n\nChange in fair value measurements \n 1,995  \n 4,122 \n\nDeduction of the contingent consideration \n \n-\n  \n (17,276)\n\nOther \n 22(*) \n 7,948 \n\nBalance as of December 31, 2024 \n$11,292  \n$100,915 \n\nIncrease due to acquisitions \n \n-\n  \n 19,154 \n\nFair value measured for the first time \n 300,000  \n \n-\n \n\nChange in fair value measurements \n (2,245) \n 25,316 \n\nDeduction of the contingent consideration \n \n-\n  \n (17,004)\n\nOther \n 29  \n 10,063 \n\nBalance as of December 31, 2025 \n$309,076  \n$138,444 \n\n \n\n(*) Reclassified\n\n \n\nF-62\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNote 9:-\nInvestments in companies accounted for at equity\n\n \n\nThe following table summarizes\nthe Group’s investments in companies accounted for at equity:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nTSG (Joint venture) \n$33,882  \n$20,453 \n\nOther Investments accounted for at equity \n 13,691  \n 17,185 \n\nOther investments held by subsidiaries \n 1,335  \n 1,558 \n\n  \n    \n   \n\n  \n$48,908  \n$39,196 \n\n \n\nInvestment in TSG\n\n \n\nThe Company holds directly a 37.33% share interest in the issued and\noutstanding share capital of TSG, a joint venture engaged in the fields of command-and-control systems, intelligence, homeland security\nand cyber security. The Company’s investment in TSG is reflected in the consolidated financial statements using the equity method\nof accounting. At the acquisition date the Company attributed an amount of $2,140 to a separate component of dividend preference derivative.\nThe dividend preference derivative is presented in accordance with the amount determined in the shareholders’ agreement prior to\nthe company’s initial public offering held on August 1, 2024 and is presented in the consolidated statements of financial position\nunder long-term investments and receivables. On August 1, 2024, TSG completed its initial public offering (IPO) pursuant to a prospectus\nand became a public company, as defined in the Israeli Companies Law, 5759–1999. The Company’s shares are traded on the Tel\nAviv Stock Exchange (TASE). As part of the IPO, TSG issued 338,500 new ordinary shares at a price of NIS 183.25 per share, for total gross\nproceeds of approximately NIS 62 million. The total issuance costs amounted to approximately NIS 5.3 million. As a result of the IPO the\ncompany recognized a capital gain of approximately $4.1 million.\n\n \n\nOn October 29, 2025, the Board of Directors of\nTSG approved a capital raising through a private placement to several investors in the amount of approximately NIS 103,500 thousand (approximately\n$31,300 thousand), as well as an additional capital raise of approximately NIS 64,500 thousand (approximately $19,500 thousand), subject\nto the exercise of options granted to investors in the same financing round. For information regarding an additional financing round of\nTSG subsequent to the end of the reporting period, see Note 26 Subsequent events.\n\n \n\na.The following table summarizes the balances related to the Company’s investment in TSG in the consolidated\nstatements of financial position:\n\n \n\n** **\n** **\n**December 31,**\n** **\n\n \n \n2025\n \n \n2024\n \n\nInvestments in companies accounted for at equity method\n \n \n \n \n \n \n\nShares\n \n$\n33,882\n \n \n$\n20,453\n \n\nLong-term investments and receivables\n \n \n \n \n \n \n \n \n\nDividend preference\n \n$\n3,512\n \n \n$\n3,652\n \n\n \n\nF-63\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNOTE 9:- INVESTMENTS\nIN COMPANIES ACCOUNTED FOR AT EQUITY (Cont.)\n\n \n\nb.The following table summarizes the changes in the fair value of TSG’s dividend preference derivative:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nOpening balance \n$3,652  \n$3,000 \n\nIncrease in fair value recognized in profit or loss \n \n-\n  \n 67 \n\nOther income \n \n-\n  \n 590 \n\nDividend \n (577) \n \n-\n \n\nCurrency exchange rate in other comprehensive income (loss) \n 437  \n (5)\n\nClosing balance \n$3,512  \n$3,652 \n\n \n\nc.The following table summarizes the changes in the carrying amount of the Company’s investment in\nTSG:\n\n \n\nJanuary 1, 2023 \n$19,459 \n\n  \n   \n\nCompany’s share of profit \n 686 \n\nCompany’s share of other comprehensive income (loss) \n (575)\n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n (572)\n\nDecember 31, 2023 \n$18,998 \n\n \n\nCompany’s share of profit \n 701 \n\nCompany’s share of other comprehensive income (loss) \n (1,964)\n\nCapital gain realized from issuance of shares \n 4,141 \n\nCapital note conversion \n (1,352)\n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n (71)\n\nDecember 31, 2024 \n$20,453 \n\n** **\n\nCompany’s share of profit \n 1,557 \n\nCompany’s share of other comprehensive income (loss) \n 101 \n\nCapital gain realized from issuance of shares and options \n 9,220 \n\nDividend \n (577)\n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n 3,128 \n\nDecember 31, 2025 \n$33,882 \n\n** **\n\nF-64\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**Note\n9:- Investments in companies accounted for at equity****(Cont.)**\n\n** **\n\nd.\nSummarized financial data of joint venture or investment:\n\n \n\n(i)Summarized statements of financial position of TSG as of December 31, 2025 and 2024:\n\n  \n  \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nCurrent assets \n$102,293  \n$64,853 \n\nNon-current assets \n 108,131  \n 79,473 \n\nCurrent liabilities \n (64,710) \n (40,853)\n\nNon-current liabilities \n (56,941) \n (59,236)\n\nNet assets \n 88,773  \n$44,237 \n\nAccumulated cost of share-based payment \n (5,676) \n (4,293)\n\nTotal equity attributed to shareholders \n$83,097  \n$39,944 \n\n  \n 37.33% \n 42.71%\n\nShare of equity in TSG \n 31,020  \n 17,060 \n\nExcess of fair value over carrying amount \n 2,862  \n 3,393 \n\nTotal investment carrying amount \n$33,882  \n$20,453 \n\n \n\n(ii)Summarized operating results of TSG for the years ended December 31, 2025, 2024 and 2023:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nRevenues \n$125,851  \n$87,102  \n$79,449 \n\nNet income \n 5,632  \n 3,028  \n 2,587 \n\nOther comprehensive income \n 270  \n 999  \n 1,236 \n\n  \n    \n    \n   \n\nTotal comprehensive income \n$5,902  \n$4,027  \n$3,823 \n\n  \n    \n    \n   \n\nCompany’s share in TSG \n 37.33% \n 42.71% \n 50%\n\n  \n 2,203  \n 1,720  \n 1,912 \n\nAmortization of excess cost of intangible assets net of tax \n (545) \n (523) \n (608)\n\nCompany’s share of total comprehensive income \n$1,658  \n$1,197  \n$1,304 \n\n  \n    \n    \n   \n\nCompany’s share of other comprehensive income \n 101  \n 496  \n 618 \n\nCompany’s share of profit \n 1,557  \n 701  \n 686 \n\n  \n$1,658  \n$1,197  \n$1,304 \n\n** **\n\nF-65\n\n \n\n** **\n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**Note\n9:- Investments in companies accounted for at equity****(Cont.)**\n\n** **\n\nOther Investments accounted\nfor at equity\n\n \n\nOn September 4, 2024, the company\nacquired 21.45% share interest in the issued and outstanding share capital of the investee. The consideration for the acquisition was\napproximately NIS 56.8 million, equivalent to approximately $15,252.\nThe Company’s investment is reflected in the consolidated financial statements using the equity method of accounting.\n\n \n\ne.The following table summarizes the balances related to the Company’s Other Investments accounted\nfor at equity in the consolidated statements of financial position:\n\n \n\n  \n\n**December\n31,**\n \n\n  \n2025  \n2024 \n\nInvestments in companies accounted for at equity method \n   \n  \n\nShares \n$13,691  \n$17,185 \n\n \n\nf.The following table summarizes the changes in the carrying amount of the Company’s Other Investments\naccounted for at equity in the consolidated statements of financial position:\n\n \n\nDecember 31, 2023 \n$- \n\n \n\nAcquisition \n 15,323 \n\nCompany’s share of profit \n 1,617 \n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n 245 \n\nDecember 31, 2024 \n$17,185 \n\n** **\n\nCompany’s share of profit \n 2,443 \n\nDividend \n (5,363)\n\nAdjustments arising from translating financial statements from functional currency to presentation currency \n (574)\n\nDecember 31, 2025 \n$13,691 \n\n** **\n\nF-66\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNOTE 9:- INVESTMENTS\nIN COMPANIES ACCOUNTED FOR AT EQUITY (Cont.)\n\n \n\ng.Summarized financial data of joint venture:\n\n \n\n(iii)Summarized statements of financial position of other Investments accounted for at equity as of December\n31, 2025 and 2024:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nCurrent assets \n$81,166  \n$84,796 \n\nNon-current assets \n 1,256  \n 597 \n\nCurrent liabilities \n (44,607) \n (45,763)\n\nNon-current liabilities \n (282) \n (186)\n\nNet assets \n$37,533  \n$39,444 \n\nAccumulated cost of share-based payment \n (3,949) \n \n-\n \n\nTotal equity attributed to shareholders \n$33,584  \n$39,444 \n\n  \n 21.45% \n 21.45%\n\nShare of equity \n 7,204  \n 8,461 \n\nExcess of fair value over carrying amount \n 6,487  \n 8,724 \n\nTotal investment carrying amount \n$13,691  \n$17,185 \n\n \n\n(iv)Summarized operating results of other Investments accounted for at equity for the years ended December\n31, 2025 and 2024:\n\n** **\n\n  \nYear ended\n\nDecember 31,  \nFor the\n\nperiod starting\n\nSeptember, 4\n\n2024\n\nand ended\n\nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nRevenues \n$248,100  \n$87,623 \n\nNet income \n 21,194  \n 10,791 \n\n  \n    \n   \n\nNet income \n$21,194  \n$10,791 \n\n  \n    \n   \n\nCompany’s share \n 21.45% \n 21.45%\n\n  \n 4,546  \n 2,315 \n\nAmortization of excess cost of intangible assets net of tax \n (2,103) \n (697)\n\nCompany’s share of profit \n$2,443  \n$1,617 \n\n  \n    \n   \n\nCompany’s share of profit \n 2,443  \n 1,617 \n\n  \n$2,443  \n$1,617 \n\n \n\nF-67\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNOTE\n10:- PROPERTY, PLANT AND EQUIPMENT, NET\n\n \n\na.Property, plants and equipment, net, are comprised of the following as of the below dates:\n\n \n\n  \nComputers,\n\nfurniture and\n\nequipment  \nLeasehold\n\nimprovements  \nMotor\n\nvehicles  \nSoftware  \nTotal \n\nCost: \n   \n   \n   \n   \n  \n\n  \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2025 \n$143,081  \n$48,275  \n$5,161  \n$2,087  \n$198,604 \n\nMeasurement period adjustments \n (31) \n (41) \n 10  \n \n-\n  \n (62)\n\nInitially consolidated company \n 5,014  \n 87  \n 313  \n \n-\n  \n 5,414 \n\nPurchases \n 12,832  \n 722  \n 2,665  \n 64  \n 16,283 \n\nDisposals \n (2,338) \n (2,643) \n (2,991) \n (10) \n (7,982)\n\nLoss of control \n (48,768) \n (7,812) \n \n-\n  \n \n-\n  \n (56,580)\n\nExchange rate differences from translation of foreign operations \n 17,245  \n 5,952  \n 676  \n 57  \n 23,930 \n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2025 \n$127,035  \n$44,540  \n$5,834  \n$2,198  \n$179,607 \n\n  \n    \n    \n    \n    \n   \n\nAccumulated depreciation: \n    \n    \n    \n    \n   \n\n  \n    \n    \n    \n    \n   \n\nBalance as of January 1, 2025 \n$113,460  \n$28,526  \n$3,316  \n$1,507  \n$146,809 \n\nMeasurement period adjustments \n (47) \n (6) \n (5) \n \n-\n  \n (58)\n\nInitially consolidated company \n 3,390  \n 16  \n 185  \n \n-\n  \n 3,591 \n\nDepreciation \n 13,430  \n 1,745  \n 2,645  \n 101  \n 17,921 \n\nDisposals \n (1,954) \n (2,204) \n (2,673) \n (10) \n (6,841)\n\nLoss of control \n (42,031) \n (5,184) \n \n-\n  \n \n-\n  \n (47,215)\n\nExchange rate differences from translation of foreign operations \n 13,474  \n 3,789  \n 416  \n 107  \n 17,786 \n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2025 \n$99,722  \n$26,682  \n$3,884  \n$1,705  \n$131,993 \n\n  \n    \n    \n    \n    \n   \n\nDepreciated cost as of December 31, 2025 \n$27,313  \n$17,858  \n$1,950  \n$493  \n$47,614 \n\n \n\nF-68\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNOTE\n10:- PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)\n\n \n\n** **** **\n**Computers,\nfurniture and\nequipment**** **** **\n**Leasehold\nimprovements**** **** **\n**Motor\nvehicles**** **** **\n**Software**** **** **\n**Total**** **\n\n**Cost:** \n   \n   \n   \n   \n  \n\n  \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2024 \n$137,060  \n$43,132  \n$5,562  \n$2,750  \n$188,504 \n\nMeasurement period adjustments \n (94) \n 81  \n 3  \n (452) \n (462)\n\nInitially consolidated company \n 2,379  \n 698  \n 760  \n \n-\n  \n 3,837 \n\nPurchases \n 10,843  \n 5,164  \n 427  \n 122  \n 16,556 \n\nDisposals \n (5,851) \n (285) \n (1,521) \n \n-\n  \n (7,657)\n\nExchange rate differences from translation of foreign operations \n (1,256) \n (515) \n (70) \n (333) \n (2,174)\n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2024 \n$143,081  \n$48,275  \n$5,161  \n$2,087  \n$198,604 \n\n  \n    \n    \n    \n    \n   \n\n**Accumulated depreciation:** \n    \n    \n    \n    \n   \n\n  \n    \n    \n    \n    \n   \n\nBalance as of January 1, 2024 \n$103,951  \n$25,535  \n$3,880  \n$2,207  \n$135,573 \n\nMeasurement period adjustments \n 2  \n -  \n 1  \n (445) \n (442)\n\nInitially consolidated company \n 1,827  \n 172  \n 337  \n \n-\n  \n 2,336 \n\nDepreciation \n 13,318  \n 3,342  \n 547  \n 80  \n 17,287 \n\nDisposals \n (4,995) \n (220) \n (1,125) \n \n-\n  \n (6,340)\n\nExchange rate differences from translation of foreign operations \n (643) \n (303) \n (324) \n (335) \n (1,605)\n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2024 \n$113,460  \n$28,526  \n$3,316  \n$1,507  \n$146,809 \n\n  \n    \n    \n    \n    \n   \n\n**Depreciated cost as of December 31,\n2024**** **\n**$****29,621**** **** **\n**$****19,749**** **** **\n**$****1,845**** **** **\n**$****580**** **** **\n**$****51,795**** **\n\n \n\nb.Depreciation expenses totaled $17,921, $17,287 and $18,513 for the years ended December 31, 2025, 2024\nand 2023, respectively.\n\n \n\nF-69\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNotE 11:-\nIntangible Assets, Net\n\n \n\na.Intangible assets, net, are comprised of the following as of the below dates:\n\n \n\n  \nCustomer\n\nrelationship  \nCapitalized\n\nSoftware costs  \nAcquired\n\ntechnology  \nOther  \nTotal \n\nCost: \n   \n   \n   \n   \n  \n\n  \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2025 \n$352,375  \n$293,731  \n$132,366  \n$13,823  \n$792,295 \n\nMeasurement period adjustments \n (436) \n \n-\n  \n (811) \n 61  \n (1,186)\n\nInitially consolidated company \n 32,841  \n \n-\n  \n 30,139  \n \n-\n  \n 62,980 \n\nPurchases \n \n-\n  \n 10,121  \n 1,547  \n 39  \n 11,707 \n\nDisposals \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nLoss of Control \n (79,958) \n (136,633) \n (97,024) \n (1,505) \n (315,120)\n\nExchange rate differences from translation of foreign operations \n 34,765  \n 6,730  \n 7,660  \n 2,112  \n 51,267 \n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2025 \n$339,587  \n$173,949  \n$73,877  \n$14,530  \n$601,943 \n\n  \n    \n    \n    \n    \n   \n\n**Accumulated\namortization:**\n \n    \n    \n    \n    \n   \n\n  \n    \n    \n    \n    \n   \n\nBalance as of January 1, 2025 \n$222,635  \n$249,913  \n$95,518  \n$7,153  \n$575,219 \n\nMeasurement period adjustments \n \n-\n  \n \n-\n  \n \n-\n  \n 61  \n 61 \n\n**Amortization**\n \n 50,319  \n 11,205  \n 16,241  \n 1,289  \n 79,054 \n\nLoss of Control \n (42,136) \n (109,055) \n (71,605) \n (1,505) \n (224,301)\n\nExchange rate differences from translation of foreign operations \n 19,571  \n 2,722  \n 743  \n 1,253  \n 24,289 \n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2025 \n$250,389  \n$154,785  \n$40,897  \n$8,251  \n$454,322 \n\n  \n    \n    \n    \n    \n   \n\nDepreciated cost as of December 31, 2025 \n$89,198  \n$19,164  \n$32,980  \n$6,279  \n$147,621 \n\n \n\nF-70\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNotE 11:-\nIntangible Assets, Net (Cont.)\n\n \n\n  \nCustomer\n\nrelationship  \nCapitalized\nSoftware costs  \nAcquired\n\ntechnology  \nOther  \nTotal \n\nCost: \n   \n   \n   \n   \n  \n\n  \n   \n   \n   \n   \n  \n\nBalance as of January 1, 2024 \n$327,102  \n$292,868  \n$100,975  \n$13,615  \n$734,560 \n\nMeasurement period adjustments \n 3,074  \n (10,010) \n 6,937  \n 462  \n 463 \n\nInitially consolidated company \n 24,406  \n \n-\n  \n 24,437  \n 137  \n 48,980 \n\nPurchases \n 159  \n 11,605  \n 568  \n 142  \n 12,474 \n\nDisposals \n \n-\n  \n (495) \n \n-\n  \n (432) \n (927)\n\nExchange rate differences from translation of foreign operations \n (2,366) \n (237) \n (551) \n (101) \n (3,255)\n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2024 \n$352,375  \n$293,731  \n$132,366  \n$13,823  \n$792,295 \n\n  \n    \n    \n    \n    \n   \n\n**Accumulated\namortization:**\n \n    \n    \n    \n    \n   \n\n  \n    \n    \n    \n    \n   \n\nBalance as of January 1, 2024 \n$194,914  \n$244,974  \n$81,947  \n$5,797  \n$527,632 \n\nMeasurement period adjustments \n 1,410  \n (6,225) \n 4,814  \n 446  \n 445 \n\n**Amortization**\n \n 26,876  \n 11,759  \n 9,208  \n 1,481  \n 49,324 \n\nDisposals \n \n-\n  \n (495) \n \n-\n  \n (432) \n (927)\n\nExchange rate differences from translation of foreign operations \n (565) \n (100) \n (451) \n (139) \n (1,255)\n\n  \n    \n    \n    \n    \n   \n\nBalance as of December 31, 2024 \n$222,635  \n$249,913  \n$95,518  \n$7,153  \n$575,219 \n\n  \n    \n    \n    \n    \n   \n\nDepreciated cost as of December 31, 2024 \n$129,740  \n$43,818  \n$36,848  \n$6,670  \n$217,076 \n\n \n\nc.Amortization expenses totaled $79,054 $49,324 and $51,265, for the years ended December 31, 2025,\n2024 and 2023, respectively. During the year ended December 31, 2025, the Company reassessed the estimated useful lives of certain acquired\ncustomer relationship intangible assets related to a non-core activity and revised them accordingly. As a result of this change in accounting\nestimate, amortization expense increased by approximately $18,705 for the year. The reassessment was based on changes in the expected\npattern of economic benefits from these assets, including the impact of changes in technological and market conditions in Israel in recent\nyears, which adversely affected the relevant sector. For further information, see Note 2(17).\n\n \n\nF-71\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNote\n12:- Goodwill\n\n \n\nThe following table summarizes\nthe changes in the carrying amount of goodwill for the years ended December 31, 2025 and 2024:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nOpening balance \n$975,080  \n$936,581 \n\nAcquisition of subsidiaries \n 91,184  \n 45,357 \n\nDeconsolidation of a subsidiary \n (484,207) \n \n-\n \n\nForeign currency translation adjustments and other classifications \n 64,186 \n (6,858)\n\nClosing balance \n$646,243  \n$975,080 \n\n \n\nThe Group performed\nannual impairment tests as of December 31, 2025, 2024 and 2023 and did not identify any impairment losses (see Note 2(18)). For more information\nregarding allocation of goodwill to each cash-generating unit see Note 25(b).\n\n \n\nThe perpetual growth\nrates and discount rates (corresponding to the weighted average cost of capital – “WACC”) applied for impairment testing\npurposes in 2025 and 2024 were as follows:\n\n \n\n  \n2025  \n2024 \n\n  \ndiscount rate  \n\n**Terminal**\n\n**growth rate**\n  \ndiscount rate  \n\n**Terminal**\n\n**growth rate**\n \n\n  \n   \n   \n   \n  \n\nMatrix (1) \n \n10%-10.1\n% \n \n3%-4\n% \n \n10.9%-11.1\n% \n 3%\n\nSapiens (2) \n \n\n-\n\n  \n \n-\n  \n \n\n12.5\n\n% \n 1.1%-3%\n\nMagic Software (3) \n \n\n13.5\n\n% \n 3% \n \n\n12.5\n\n% \n 3%\n\nOther consolidated subsidiaries (4) \n \n\n13.5\n\n% \n 3% \n \n\n13.5\n\n% \n 3%\n\n \n\n \n\n(1) The goodwill allocated to the operating segment Matrix is mainly related to two groups of cash-generating units. Cash flows are discounted using weighted discount rates that range between 10% to 10.1% and a fixed growth rate of 3% in 2025 (2024 - weighted discount rates that range between 10.9% to 11.1% and fixed growth rates of 3%). The carrying amount of goodwill allocated to the other groups of cash-generating units included in Matrix is immaterial.\n\n \n\n(2) The goodwill allocated to the operating segment Sapiens is mainly related to two groups of cash-generating units. Cash flows are discounted using a weighted discount rate of 12.5% and a growth rate that range between 1.1% to 3% in 2024. The carrying amount of goodwill allocated to the other groups of cash-generating units included in Sapiens is immaterial.\n\n \n\n(3) The goodwill allocated to the operating segment Magic Software is related to four groups of cash-generating units. Cash flows are discounted using weighted discount rates of 13.5% and a fixed growth rate of 3% in 2025 (2024 - weighted discount rates of 12.5% and fixed growth rates of 3%). The carrying amount of goodwill allocated to the other groups of cash-generating units included in Magic Software is immaterial.\n\n \n\n(4)Goodwill is allocated across multiple groups of cash-generating\nunits. The carrying amount of goodwill allocated to each group of cash-generating units is immaterial. The Group performed sensitivity\nanalyses regarding the main assumptions in the impairment tests. No impairment of the goodwill tested would be recognized in the event\nof a reasonably possible change in the assumptions used in 2025 (the same was true for 2024). The Group performed annual impairment tests\nas of December 31, 2025, 2024 and 2023 and did not identify any impairment losses.\n\n \n\nF-72\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**Note 13:-\nDISPOSAL GROUP HELD FOR SALE AND DISCONTINUED OPERATIONS**\n\n \n\nOn August 13, 2025,\nSapiens International Corporation N.V. (“Sapiens”), which was a subsidiary of the Company at that time, announced that it\nhad entered into a definitive agreement to be acquired by Advent International, a leading global private equity investor, for $43.50 per\ncommon share in an all-cash transaction (the “Transaction”).\n\n \n\nUnder the terms of\nthe Transaction, the Company agreed to retain a significant minority ownership interest in Sapiens through an indirect holding structure.\nFollowing completion of the Transaction, the Company holds approximately an 18.68% equity interest in Sapiens through SI Swan UK Topco\nLimited (“SI Swan”), the ultimate parent company of Sapiens.\n\n \n\nOn November 19, 2025,\nSapiens held an extraordinary general meeting of shareholders, at which all proposals required to approve the Transaction were duly approved.\n\n \n\nOn December 17, 2025,\nthe Transaction was completed. Immediately prior to the closing, the Company held approximately 43.5% of the outstanding share capital\nof Sapiens. In connection with the Transaction, the Company (i) sold 17,418,214 Sapiens common shares for aggregate cash consideration\nof $757,692, and (ii) contributed 6,896,552 Sapiens common shares to SI Swan in exchange for equity interests therein. The contributed\nshares were valued at $300,000 for purposes of the Transaction. The retained investment in SI Swan is accounted for fair value through\nprofit or loss.\n\n \n\nAs a result of the\nTransaction, the Company’s direct equity interest in Sapiens was replaced with an indirect equity interest of approximately 18.68%\nin SI Swan, and the Company ceased to have a controlling financial interest in Sapiens. Accordingly, the Company deconsolidated Sapiens\nas of the closing date and recognized a net gain on disposal of approximately $578,314.\n\n \n\n1)Below are data of the operating results attributed to the discontinued operation:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nRevenues \n 565,834  \n 542,380  \n 514,584 \n\nCost of  Revenues \n 332,834  \n 303,423  \n 292,046 \n\n  \n    \n    \n   \n\nGross profit \n 233,000  \n 238,957  \n 222,538 \n\n  \n    \n    \n   \n\nResearch and development expenses, net \n 74,448  \n 66,302  \n 63,476 \n\nSelling, marketing, general and administrative expenses \n 163,389  \n 85,467  \n 77,739 \n\n  \n    \n    \n   \n\nOperating income (loss) \n (4,837) \n 87,188  \n 81,323 \n\nFinance  expenses (income), net \n (175) \n (2,324) \n 3,543 \n\n  \n    \n    \n   \n\nIncome (loss) before taxes on income \n (4,662) \n 89,512  \n 77,780 \n\nTaxes on income (tax benefit) \n 14,172  \n 17,891  \n 14,241 \n\n  \n    \n    \n   \n\nNet Income (loss) discontinued operation \n (18,834) \n 71,621  \n 63,539 \n\n  \n    \n    \n   \n\nIncome from sale of discontinued operation, net \n 578,314  \n \n-\n  \n \n-\n \n\n  \n    \n    \n   \n\nNet Income from discontinued operation \n 559,480  \n 71,621  \n 63,539 \n\n  \n    \n    \n   \n\nNet Income (loss) from discontinued operation Attributable to: \n    \n    \n   \n\nNon-controlling interests from discontinued operations \n (10,485) \n 40,494  \n 35,264 \n\nFormula’s shareholders from discontinued operations \n 569,965  \n 31,127  \n 28,275 \n\n  \n    \n    \n   \n\nNet Income from discontinued operation \n 559,480  \n 71,621  \n 63,539 \n\n  \n    \n    \n   \n\nNet earnings per share attributable to  Formula’s shareholders : \n    \n    \n   \n\nEarnings per share from discontinued operations (basic) \n 37.24  \n 2.04  \n 1.85 \n\nEarnings per share from discontinued operations (diluted) \n 36.09  \n 1.99  \n 1.82 \n\n \n\nF-73\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\n**NOTE\n13:- DISPOSAL GROUP HELD FOR SALE AND DISCONTINUED OPERATIONS (Cont.)**\n\n \n\n2)Below are data of the net cash flows provided by (used in) the discontinued operation:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nNet cash provided by (used in) discontinued operating activities \n 58,931  \n 91,913  \n 89,580 \n\nNet cash provided by (used in) discontinued investing activities \n (62,766) \n 12,778  \n (72,780)\n\nNet cash provided by (used in) discontinued financing activities \n (68,953) \n (51,481) \n (41,094)\n\n  \n    \n    \n   \n\nTotal net cash provided by (used in) discontinued operation \n (72,788) \n 53,210  \n (24,294)\n\n \n\n**Note 14:-\nshort term loans from banks and others**\n\n** **\n\n    **December 31, 2025 Interest rate**       December 31,  \n\n    (%)   **Currency**     2025     2024  \n\n                     \n\n                     \n\nCurrent maturities of long-term loans from banks and  others    1.9 – 8.4   NIS   $ 48,341     $ 38,976  \n\nCurrent maturities of long-term loans from banks    6.5-6.6   USD     10,220       13,516  \n\nCommercial securities not listed   P-1.25    NIS     97,788       82,259  \n\nShort-term bank loans and credit line   3.4 – P+0.95   NIS and USD     20,481       5,738  \n\nAccrued interest on long-term loans from banks and others    P + 0.02–P+1.2   NIS and USD     1,069       1,293  \n\n            $ 177,899     $ 141,782  \n\n \n\nNote 15:- other accounts\npayable\n\n \n\nOther\naccounts payable are comprised of the following as of the below dates:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nGovernment institutions \n$45,519  \n$50,510 \n\nDividend to former shareholders of subsidiaries \n 2,059  \n \n-\n \n\nAccrued expenses and other current liabilities \n 148,239  \n 47,536 \n\n  \n$195,817  \n$98,046 \n\n \n\nF-74\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO\nTHE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNote 16:- Long term\nloans from Banks and Others\n\n \n\na.Long-term loans from banks and others are comprised of the following as of the below dates:\n\n \n\n   Currency  Long-term loans   Current maturities   Long-term loans net of current maturities   Long-term loans net of current maturities \n\nInterest rate\n\n%     December 31, 2025   December 31,\n\n2024 \n\n1.9 – 8.4   NIS (Unlinked)   $106,079   $48,341   $57,738   $  60,680 \n\n6.5-6.6   USD (Unlinked)    20,791    10,220    10,571    2,053 \n\n      $126,870   $58,561   $68,309   $62,733 \n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nFirst year (current maturities) \n$58,561  \n$52,492 \n\nSecond year \n 45,137  \n 28,728 \n\nThird year \n 13,373  \n 24,804 \n\nFourth year \n 6,536  \n 5,637 \n\nFifth year and thereafter \n 3,263  \n 3,564 \n\n  \n$126,870  \n$115,225 \n\nb.Maturity dates:\n\n \n\nDetails of guarantees, credit facilities and covenants\nare described in Notes 21(b) and 21(c), respectively.\n\n \n\nF-75\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n \n\nNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE 17:-\nDEBENTURES**\n\n \n\nThe Group’s liabilities\nunder debentures are attributable to debentures issued by Formula and Matrix. The debentures are all listed for trading on the TASE.\n\n \n\na.Debentures are comprised of the following as of the below dates:\n\n \n\n   Effective Interest rate   Currency  Par value in issuance currency (thousand)  Par Value   Unamortized debt premium (discount) and issuance costs, net   Current maturities   Total\nlong-term\ndebentures,\nnet of\ncurrent\nmaturities   Short-term accrued interest   Total\nshort-term\nand\nlong-term\ndebentures \n\n   %         December 31, 2025 \n\nFormula’s Series C\nSecured Debentures (2.29%)   2.7   NIS (Unlinked)  NIS 165,642  $51,925   $(187)  $51,738   $-   $98   $51,836 \n\n                                          \n\nFormula’s Series D\nSecured Debentures (5.68%)   6.01   NIS (Unlinked)  NIS 150,000  $47,022    (525)   -    46,497    221    46,718 \n\n                                          \n\nMatrix’s Series B Debentures (4.1%)   4.5   NIS (Unlinked)  NIS 305,820  $95,868    (837)   22,872    72,159    1,767    96,798 \n\n                                          \n\n              $194,815   $(1,549)  $74,610   $118,656   $2,086   $195,352 \n\n                                   \n\n   Effective Interest rate   Currency  Par value in issuance currency (thousand)  Par Value   Unamortized debt premium (discount) and issuance costs, net   Current maturities   Total\nlong-term\ndebentures,\nnet of\ncurrent\nmaturities   Short-term accrued interest   Total\nshort-term\nand\nlong-term\ndebentures \n\n   %         December 31, 2024 \n\nFormula’s Series C Secured Debentures (2.29%)   2.7   NIS (Unlinked)  NIS 331,283  $90,837   $(499)  $45,419   $44,919   $170   $90,508 \n\n                                          \n\nFormula’s Series D\nSecured Debentures (5.68%)   6.01   NIS (Unlinked)  NIS 150,000  $41,130    (528)   -    40,602    193    40,795 \n\n                                          \n\nSapiens’ Series B Debentures (3.37%)   3.3   NIS (Linked to fix rate of USD)  NIS 140,000  $39,593    (5)   19,796    19,792    672    40,260 \n\n                                          \n\nMatrix’s Series B Debentures (4.1%)   4.5   NIS (Unlinked)  NIS 373,738  $102,478    (1,078)   18,623    82,777    1,909    103,309 \n\n                                          \n\n              $274,038   $(2,110)  $83,838   $188,090   $2,944   $274,872 \n\n \n\nDuring the years\nended December 31, 2025, 2024 and 2023, the Group recorded $6,080, $6,336 and $7,450, respectively, of interest expenses, and $561, $618\nand $667, respectively, of amortization of debt premium (discount) and issuance costs, net in respect of the Group’s debentures.\n\n \n\nF-76\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 17:**- DEBENTURES**\n(Cont.)\n\n \n\nb.Scheduled aggregate principal annual payments of the debentures:\n\n \n\n  \nRepayment amount \n\n2026 \n$74,797 \n\n2027 \n 28,393 \n\n2028 \n 26,620 \n\n2029 \n 24,957 \n\n2030 \n 40,048 \n\n  \n$194,815 \n\n \n\nc.Formula’s debentures\n\n \n\ni)Formula Systems Series A Secured Debentures\n\n \n\nOn September 16,\n2015, Formula issued Formula Systems Series A Secured Debentures in an aggregate principal amount of NIS 102,260 thousand (approximately\n$26,295), at a purchase price equal to 100% of their par value, payable in eight equal annual installments on July 2nd of each\nof the years 2017 through 2024. The principal amount outstanding under the Formula Systems Series A Secured Debentures bears interest\nat a fixed rate of 2.8% per annum (subject to adjustments based on the credit rating of the debentures), payable on July 2nd\nand January 2nd of each of the years 2016 through 2024. Issuance costs, including early commitment commission of approximately\nNIS 1,246 thousand (approximately $320), were allocated to the Formula Systems Series A Secured Debentures and are amortized as financial\nexpenses over the term of the Series A Secured Debentures due in 2024.\n\n \n\nOn January 31, 2018,\nFormula issued additional Formula Systems Series A Secured Debentures in an aggregate principal amount of NIS 150,000 thousand (approximately\n$44,053) through a private placement to qualified investors in Israel. The gross proceeds received by Formula from the issuance of Formula\nSystems Series A Secured Debentures in January 2018 were NIS 155,205 thousand (approximately $45,581), out of which NIS 336 thousand\nwas attributed to interest payable (approximately $99). Debt premium of NIS 4,869 thousand (approximately $1,430) net of issuance costs\nof NIS 782 thousand (approximately $225) was allocated to the Formula Systems Series A Secured Debentures and is amortized as financial\nincome over the remaining term of the Formula Systems Series A Secured Debentures due in 2024.\n\n \n\nThe Formula Systems\nSeries A Secured Debentures were listed for trading on the Tel Aviv Stock Exchange (TASE) from the date of their issuance until their\nmaturity on June 30, 2024.\n\n \n\nThe remaining outstanding\nSeries A Secured Debentures amounting to NIS 34,211 thousand (or $9,101) and their respective accumulated interest of $127 were fully\npaid on June 30, 2024.\n\n \n\nii)Formula Systems Series C Secured Debentures\n\n \n\nOn March 31,\n2019, Formula issued Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS 300,000 thousand\n(approximately $82,600), at a purchase price equal to 100% of their par value. The principal due under the Series C Secured\nDebentures is payable in five annual installments of NIS 33,000 thousand on December 1 of each of the years 2020 through 2024 and\ntwo annual installments of NIS 67,500 thousand on December 1 of each of the years 2025 and 2026. The outstanding principal amount\nunder the Formula Systems Series C Secured Debentures bears interest at a fixed rate of 2.29% per annum (subject to adjustments\nbased on the credit rating of the debentures), payable on December 1st and June 1st of each of the years 2019\nthrough 2026. Issuance costs, including an early commitment commission of approximately NIS 3,355 thousand (approximately $924) were\nallocated to Formula Systems Series C Secured Debentures and are amortized as financial expenses over the term of Formula Systems\nSeries C Secured Debentures due in 2026.\n\n \n\nF-77\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 17:**- DEBENTURES**\n(Cont.)\n\n \n\nOn April 12, 2021,\nFormula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS 160,000 thousand (approximately\n$48,617) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula\nSystems Series C Secured Debentures in April 2021 were NIS 165,920 thousand (approximately $50,524), out of which NIS 1,329 thousand\nwas attributed to interest payable (approximately $405). Debt premium of NIS 4,591 thousand (approximately $1,398) net of issuance costs\nof NIS 752 thousand (approximately $229) was allocated to the Formula Systems Series C Secured Debentures and is amortized as financial\nincome over the remaining term of the Formula Systems Series A Secured Debentures due in 2026.\n\n \n\nOn August 30, 2022,\nFormula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS 200,000 thousand (approximately\n$60,514) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula\nSystems Series C Secured Debentures in August 2022 were NIS 195,000 thousand (approximately $59,002), out of which NIS 1,126 thousand\nwas attributed to interest payable (approximately $341). Debt deficit of NIS 7,076 thousand (approximately $2,141) including issuance\ncosts of NIS 950 thousand (approximately $287) were allocated to the Formula Systems Series C Secured Debentures and are amortized as\nfinancial expenses over the remaining term of the Formula Systems Series C Secured Debentures due in 2026.\n\n \n\nThe Formula Systems\nSeries C Secured Debentures issued in March 2019, together with the Formula Systems Series C Secured Debentures sold in April 2021 and\nin August 2022 in private placements, form one single series with identical terms and conditions.\n\n \n\nThe Formula Systems\nSeries C Secured Debentures are denominated in New Israeli Shekels and are not linked to any currency or index and are non-convertible.\nThe Formula Systems Series C Secured Debentures are secured with collateral consisting of shares of Matrix (see Note 21a).\n\n \n\nThe Series C Secured\nDebentures are listed for trading on the TASE. As of December 31, 2025 and 2024, the fair value of Formula’s Series C Secured Debentures,\nbased on the quoted market price on the TASE, were approximately $51,048 and $88,248, respectively.\n\n \n\nThe offerings of\nFormula’s debentures were made only in Israel and not to U.S. persons (as defined in Rule 902(k) under the Securities Act of 1933,\nas amended (the “Securities Act”)), in an overseas directed offering (as defined in Rule 903(b)(i)(ii) under the Securities\nAct) and were exempt from registration under the Securities Act pursuant to the exemption provided by Regulation S thereunder.\n\n \n\nF-78\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 17:**- DEBENTURES**\n(Cont.)\n\n \n\nThe sale of Formula’s\ndebentures was not registered under the Securities Act, and Formula’s debentures may not be offered or sold in the United States\nand/or to U.S. persons without registration under the Securities Act or an applicable exemption from the registration requirements of\nthe Securities Act.\n\n** **\n\nIn accordance with\nthe indenture for the Formula Systems Series C Secured Debentures and the Formula Systems Series D Secured Debentures, Formula has undertaken\nto maintain a number of conditions and limitations on the manner in which it operates its business, including limitations on its ability\nto undergo a change of control, distribute dividends, incur a floating charge on its assets, or undergo an asset sale or other change\nthat results in a fundamental change in its operations, and to meet certain financial covenants (see Notes 21a and 21c(1)(i)).\n\n \n\niii)Formula Systems Series D Secured Debentures\n\n \n\nOn September 17\nand 19, 2024, Formula issued Formula Systems Series D Secured Debentures in an aggregate principal amount of NIS 150,000 thousand\n(approximately $39,756), at a purchase price equal to 100% of their par value. The principal due under the Series D Secured\nDebentures payable in seven annual installments of NIS 18,000 thousand on December 1 of each of the years 2027 through 2033 and one\ninstallments of NIS 24,000 thousand on December 1 2034. The principal amount outstanding under the Formula Systems Series D Secured\nDebentures bears interest at a fixed rate of 5.68% per annum (subject to adjustments based on the credit rating of the debentures),\npayable on June 1st and December 1st of each of the years 2024 through 2034. Issuance costs, including early\ncommitment commission of approximately NIS 2,013 thousand (approximately $534), were allocated to the Formula Systems Series D\nSecured Debentures and are amortized as financial expenses over the term of the Series D Secured Debentures due in 2034.\n\n \n\nThe Series D Secured\nDebentures are denominated in New Israeli Shekels not linked to any currency or index, and are non-convertible. The Formula Systems Series\nD Secured Debentures are secured with collateral consisting of shares of Matrix, and Sapiens (see Note 21a).\n\n \n\nThe Formula Systems\nSeries D Secured Debentures are listed for trading on the TASE. As of December 31, 2025 and 2024, the fair value of Formula’s Series\nD Secured Debentures, based on the quoted market price on the TASE, were approximately $50,520 and $43,289, respectively.\n\n \n\nd.Sapiens’ Series B Debentures\n\n \n\nOn September 16,\n2017, Sapiens issued its unsecured Series B Debentures in an aggregate principal amount of NIS 280,000 thousand (approximately $79,186),\nlinked to the US dollar and payable in eight equal annual payments of $9,898 on January 1st of each of the years 2019 through\n2026. The outstanding principal amount of Sapiens’ Series B Debentures bears a fixed interest rate of 3.37% per annum (which may\nbe adjusted based on changes to the credit rating of the debentures), payable on January 1st and July 1st of each\nof the years 2018 through 2025, with one final interest payment due on January 1, 2026. Debt discount, and issuance costs were approximately\n$956, allocated to Sapiens’ Series B Debentures discount and are amortized as financial expenses over the term of the Series B Debentures\ndue in 2026.\n\n \n\nF-79\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 17:**- DEBENTURES**\n(Cont.)\n\n \n\nOn June 8, 2020,\nSapiens issued additional Sapiens’ Series B Debentures in an aggregate principal amount of NIS 210,000 thousand (approximately $60,362)\nthrough a public offering in Israel. The gross proceeds received from the issuance of Sapiens’ Series B Debentures in June 2020\nwere NIS 210,840 thousand (approximately $60,603), out of which approximately NIS 3,006 thousand was attributed to interest payable (approximately\n$864). Debt discount of NIS 2,166 thousand (approximately $623) and issuance costs of NIS 2,326 thousand (approximately $669) were allocated\nto Sapiens’ Series B Debentures and are amortized as financial expenses over the remaining term of the Sapiens Series B Debentures\ndue in 2026. Sapiens’ Series B Debentures issued in September 2017 together with the Sapiens’ Series B Debentures issued in\nJune 2020, form one single series with identical terms and conditions. Sapiens’ Series B Debentures are linked to the US Dollar,\nunsecured and non-convertible. Sapiens’ Series B Debentures are listed for trading on the TASE.\nAs part of the disposal of Sapiens during 2025, the Company deconsolidated the related debentures. For further information See Note 13.\n\n \n\ne.Matrix’s Series B Debentures\n\n \n\nOn September\n18, 2022, Matrix issued the Matrix’s Series B Debentures in an aggregate principal amount of NIS 295,249 thousand\n(approximately $87,872), at a purchase price equal to 100% of their par value. The principal due under the Matrix’s Series B\nDebentures is payable in fourteen (14) semi-annual installments each equal to approximately 7.14% of the aggregate principal amount\n(or approximately NIS 21,081 thousand) on February 1 and on August 1 for the period from August 1, 2023 to February 1, 2030. The\noutstanding principal amount under the Matrix’s Series B Debentures bears interest at a fixed rate of 4.1% per annum (subject\nto adjustments based on the credit rating of the debentures), payable on February 1st and August 1st for the\nperiod from February 1, 2023 to February 1, 2030. Issuance costs including an early commitment commission of approximately NIS 2,158\nthousand (approximately $642) were allocated to the Matrix’s Series B Debentures and are amortized as financial expenses over\nthe term of the Matrix’s Series B Debentures due in 2030.\n\n \n\nOn December 4,\n2022, Matrix issued additional Matrix’s Series B Debentures in an aggregate principal amount of NIS 180,366 thousand\n(approximately $53,680) through a private placement to qualified investors in Israel. The gross proceeds received by Matrix for the\nissuance of Matrix’s Series B Debentures in December 2022 were NIS 178,385 thousand (approximately $53,107), out of which\nNIS 1,582 thousand was attributed to interest payable (approximately $471). Debt deficit of NIS 1,981 thousand (approximately $590)\nincluding issuance costs of NIS 399 thousand (approximately $119) were allocated to the Matrix’s Series B Debentures and are\namortized as financial expenses over the remaining term of the Matrix’s Series B Debentures due in 2030.\n\n \n\nThe Matrix’s Series B Debentures\nissued in September 2022, together with the Matrix Series B Debentures sold in December 2022 in a private placement, form one single series\nwith identical terms and conditions.\n\n \n\nAs of December 31, 2025 and 2024, the fair value of Matrix’s\nSeries B Debentures, based on the quoted market price on the TASE, was approximately $97,335 and $102,519, respectively.\n\n \n\nFor further information\nregarding the issuance of Matrix’s convertible debentures (Series 2), after the end of the reporting period, see Note 26 Subsequent\nevents.\n\n \n\nF-80\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n18:- RELATED PARTies TRANSACTIONS\n\n \n\na)Transactions with Asseco and affiliated companies\n\n \n\nDuring the years\nended December 31, 2025, 2024 and 2023, Asseco provided back-office services, professional services and fixed assets to Sapiens’\nwholly owned subsidiary, Sapiens Poland, in amounts totaling approximately $156, $168 and $165, respectively.\n\n \n\nDuring the years\nended December 31, 2025, 2024 and 2023, Sapiens Poland performed services as a sub-contractor on behalf of Asseco for clients of Asseco\nin total amounts of approximately $3,400, $3,900 and $3,500, respectively. For historic reasons, Asseco issues invoices to those clients\nand then Sapiens in turn invoices Asseco on a back-to-back basis (with no margin to Asseco).\n\n \n\nAs of December 31,\n2025 and 2024 the Group had trade payable balances due from its transactions with Asseco, as detailed above, in amounts of $716 and $3,633,\nrespectively. As of December 31, 2025 and 2024, the Group had trade receivables balances due from its transactions with Asseco, as detailed\nabove, in amounts of approximately $0 and $823, respectively.\n\n \n\nb)Fees paid for board services in affiliates\n\n \n\nSapiens paid Formula\ndirector fees for the years ended December 31, 2025, 2024 and 2023, of approximately $40, $32 and $28, respectively, in respect of Mr.\nGuy Bernstein, Sapiens’ Chairman and Formula’s chief executive officer.\n\n \n\nMatrix paid Formula\ndirector fees for the years ended December 31, 2025, 2024 and 2023, of approximately $30, $29 and $27, respectively, in respect of Mr.\nGuy Bernstein, Matrix’s Chairman and Formula’s chief executive officer.\n\n \n\nc)Compensation of key officers of the Company\n\n \n\nThe following amounts\ndisclosed in the table are recognized as an expense or as a equity reduction during the reporting period related to officers and directors\nof the Company:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024 \n\nShort-term employee benefits \n$25,596  \n$5,323 \n\nShare-based compensation \n 7,396  \n 7,031 \n\n  \n$32,992  \n$12,354 \n\n \n\nd)Other Transactions\n\n \n\nThe\nGroup’s subsidiaries and affiliates engage from time to time with each other in non-material transactions, in the ordinary\ncourse of business, where the amounts involved, and the nature of the transactions, are not material for either of the parties. The\nGroup believes that these transactions are made on an arms’ length basis upon terms and conditions no less favorable to the\nGroup, its subsidiaries and affiliates, as it could obtain from unaffiliated third parties. If Group engages with its subsidiaries\nand affiliates in transactions which are not in the ordinary course of business, the Group receives the approvals required under the\nCompanies Law. These approvals include audit committee approval, board approval and, in certain circumstances, shareholder\napproval.\n\n \n\nF-81\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n19:- LEASES\n\n \n\nThe Group leases substantially\nall of its office space and vehicles under operating leases. The Group’s leases have original lease periods expiring between 2025\nand 2036. Some leases include one or more options to renew. The Group does not assume renewals in its determination of the lease term\nunless the renewals are deemed to be reasonably certain at lease commencement. Lease payments included in the measurement of the lease\nliability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably\ncertain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will\nnot be terminated early.\n\n \n\nUnder IFRS 16, all leases with\ndurations greater than 12 months, including non-cancellable operating leases, are now recognized on the statement of financial position.\nThe aggregated present value of lease agreements is recorded as a long-term asset titled operating lease right-of-use assets.\n\n \n\nThe corresponding lease liabilities\nare classified between operating lease liabilities which are current and long-term.\n\n \n\nMaturity analysis of undiscounted\nfuture lease payments receivable for operating leases:\n\n \n\n2026 \n$43,783 \n\n2027 \n 31,672 \n\n2028 \n 23,286 \n\n2029 \n 17,965 \n\n2030 \n 46,300 \n\n2031 and thereafter \n 2,825 \n\nTotal undiscounted cash flows \n$165,831 \n\n  \n   \n\nLess imputed interest \n (15,127)\n\nPresent value of lease liabilities \n$150,704 \n\n \n\n** **** **\n**Year ended December 31,**** **\n\n  \n2025  \n2024 \n\n  \n   \n  \n\nInterest expense on lease liabilities \n$6,749  \n$6,506 \n\nTotal cash outflow for leases \n$54,389  \n$50,088 \n\n \n\nF-82\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n19:- LEASES (Cont.)\n\n \n\na.Disclosures in respect of right-of-use assets:\n\n \n\n  \nLand and buildings  \nMotor vehicles  \nTotal \n\nCost: \n   \n   \n  \n\nBalance as of January 1, 2025 \n$250,918  \n$65,514  \n$316,432 \n\nAdditions during the year: \n    \n    \n   \n\nNew leases \n 35,295  \n 20,291  \n 55,586 \n\nAdjustments for indexation \n 5,861  \n 1,011  \n 6,872 \n\nAdjustments arising from translating financial statements of foreign operations \n 32,448  \n 5,235  \n 37,683 \n\nModification of leases \n (8,157) \n 1,381  \n (6,776)\n\nAcquisition of subsidiaries \n \n-\n  \n 575  \n 575 \n\nDisposals during the year: \n    \n    \n   \n\nTermination of leases \n (15,298) \n (15,166) \n (30,464)\n\nLoss of control \n (46,334) \n (7,776) \n (54,110)\n\n  \n    \n    \n   \n\nBalance as of December 31, 2025 \n 254,733  \n 71,065  \n 325,798 \n\n  \n    \n    \n   \n\nAccumulated depreciation: \n    \n    \n   \n\nBalance as of January 1, 2025 \n 124,020  \n 36,187  \n 160,207 \n\nAdditions during the year: \n    \n    \n   \n\nDepreciation \n 34,884  \n 20,655  \n \n55,539\n \n\nAdjustments arising from translating financial statements of foreign operations \n 21,994  \n 1,546  \n \n23,540\n \n\nModification of leases \n (62) \n 749  \n 687 \n\nDisposals during the year: \n    \n    \n   \n\nTermination of leases \n (8,843) \n (14,294) \n (23,137)\n\nLoss of control \n (30,686) \n (5,814) \n (36,500)\n\nBalance as of December 31, 2025 \n 141,307  \n 39,029  \n 180,336 \n\nDepreciated cost as of December 31, 2025 \n 113,426  \n 32,036  \n 145,462 \n\n \n\n  \nLand and buildings  \nMotor vehicles  \nTotal \n\nCost: \n   \n   \n  \n\nBalance as of January 1, 2024 \n$195,807  \n$61,832  \n$257,639 \n\nAdditions during the year: \n    \n    \n   \n\nNew leases \n 61,449  \n 20,399  \n 81,848 \n\nAdjustments for indexation \n 6,181  \n 596  \n 6,777 \n\nAdjustments arising from translating financial statements of foreign operations \n (1,226) \n (4,033) \n (5,259)\n\nModification of leases \n (473) \n \n-\n  \n (473)\n\nAcquisition of subsidiaries \n 314  \n \n-\n  \n 314 \n\nDisposals during the year: \n    \n    \n   \n\nTermination of leases \n (11,134) \n (13,280) \n (24,414)\n\n  \n    \n    \n   \n\nBalance as of December 31, 2024 \n 250,918  \n 65,514  \n 316,432 \n\n  \n    \n    \n   \n\nAccumulated depreciation: \n    \n    \n   \n\nBalance as of January 1, 2024 \n 104,714  \n 32,274  \n 136,988 \n\nAdditions during the year: \n    \n    \n   \n\nDepreciation \n 28,663  \n 20,221  \n 48,884 \n\nAdjustments arising from translating financial statements of foreign operations \n (429) \n (3,828) \n (4,257)\n\nDisposals during the year: \n    \n    \n   \n\nTermination of leases \n (8,928) \n (12,480) \n (21,408)\n\nBalance as of December 31, 2024 \n 124,020  \n 36,187  \n 160,207 \n\nDepreciated cost as of December 31, 2024 \n 126,898  \n 29,327  \n 156,225 \n\n \n\nF-83\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n20:- Employee Option Plans\n\n \n\na)Formula and its subsidiaries grant, from time to time, options,\nrestricted share units or restricted shares to their officers and employees to purchase shares in the respective companies. In general,\nthe options expire ten years after grant. The following table sets forth the breakdown of share-based compensation expense resulting\nfrom such grants, as included in the consolidated statements of profit or loss:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nGeneral and administrative expenses \n$31,147  \n$16,164  \n$18,622 \n\n  \n$31,147  \n$16,164  \n$18,622 \n\n \n\nb)Formula:\n\n \n\nIn August 2021, the\nCompany adopted its 2021 Share Incentive Plan (the “2021 Plan”). Pursuant to the 2021 Plan, the Company may grant from time\nto time to its employees, office holders and consultants, options to purchase, share-based awards or restricted shares with respect to,\nup to an aggregate of 350,000 Ordinary shares (including 48,378 Ordinary shares that were reserved for issuance under prior years plans\nand not subject to outstanding grants and transferred to the 2021 Plan). The 2021 Plan is administered by the Company’s board of\ndirectors. The 2021 Plan provides that options, restricted shares, or other stock-based awards may be granted, from time to time, to such\ngrantees to be determined by the Company’s board of directors, at such exercise prices and with such vesting or other terms as shall\nbe determined by the Company’s board of directors at its sole and absolute discretion.\n\n \n\nIn March 2022, Formula’s\nBoard of Directors, following the approval of the Compensation Committee, granted a total of 23,400 restricted shares under the 2021 Plan,\nof which 21,000 restricted shares and 2,400 restricted shares were granted to employees of the Company. The restricted shares vest over\na six-year period, commencing on March 15, 2022 and ending on December 31, 2027. Of the total grant, 21,000 restricted shares vest on\na quarterly basis, while 2,400 restricted shares vest at specified dates over the vesting period. The total fair value of the grants was\ndetermined based on the share price of Formula at the grant date and amounted to $2,263 ($96.7 per share), of which $2,031 relates to\nthe 21,000 shares and $232 relates to the 2,400 shares. Compensation expenses recognized in the Company’s statement of profit or\nloss in respect of the 21,000 restricted shares for the years ended December 31, 2025, 2024 and 2023 amounted to $165, $249 and $407,\nrespectively. As of December 31, 2025, 16,372 Ordinary shares out of the total 23,400 restricted shares were fully vested, of which 15,000\nshares relate to the 21,000 grant and 1,372 shares relate to the 2,400 grant.\n\n \n\nIn January 2023,\nFormula’s board of directors, following the approval by Formula’s compensation committee, awarded 15,000 restricted shares\nunder the 2021 plan. These restricted shares vest on an annual basis over a six-year period, commencing on December 31, 2023 and concluding\non December 31, 2029. The total fair value of the grant was calculated based on the Formula share price on the grant date and equaled\n$1,225 ($81.65 per share). As of December 31, 2025, 6,428 Ordinary shares out of the 15,000 Ordinary shares, were fully vested.\n\n \n\nF-84\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES\nTO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n20:- EMPLOYEE OPTION PLANS (Cont.)\n\n \n\nIn November\n2020, Formula’s board of directors, following the approval by Formula’s compensation committee, awarded its chief\nexecutive officer 611,771 restricted stock units (“RSUs”) in respect of ordinary shares of the Company. 66.67% of the\nRSUs (i.e., 407,847 RSUs) are subject to time-based vesting that shall start as of the grant date and shall end as of December 31,\n2027, subject to the continued engagement of Formula’s chief executive officer with the Company as of that date (the\n“Vesting Period”); and up to 33.33% of the RSUs (i.e., 203,924 RSUs as of the date hereof) are subject to\nperformance-based vesting, and shall vest as of December 31, 2027 on a pro-rata basis with respect to each fiscal year (starting as\nof January 1, 2020) during the Vesting Period in which the target EBITDA (as defined in the grant) is achieved, subject to the\ncontinued engagement of Formula’s chief executive officer with the Company. At the end of the vesting period, the number of\nperformances-based RSUs that vests shall be equal to (i) the number of fiscal years in which the target EBITDA (as defined in the\ngrant) was achieved multiplied by (ii) 25,490.50 RSUs (rounded to the nearest whole number, up to a cap of 203,924 RSUs in\ntotal).\n\n \n\nThe total fair value\nof the grant was calculated based on the Formula share price on the grant date and equaled NIS 170,684 thousand, or $50,054 ($81.8 per\nshare). The total compensation expense the Company recorded in its statement of profit or loss in respect of this grant, in accordance\nwith accounting principles, for the years ended December 31, 2025, 2024, and 2023 was approximately $6,899, $6,437 and $6,460, respectively.\n\n \n\nIn the event of termination\nof Formula’s chief executive officer services agreement with the Company, by the Company for Cause (as defined in the services agreement),\nthe RSUs will immediately terminate and become null and void, and all interests and rights of Formula’s chief executive officer\nin and to the same will expire. In case of termination of Formula’s chief executive officer services agreement by the Company not\nfor Cause, or due to the resignation of Formula’s chief executive officer for Good Reason (as defined in the grant), all unvested\nRSUs that could have vested from the grant date until December 31, 2027, assuming all performance and time conditions and future targets\nwould have been fulfilled (including all targets that would have resulted in vesting with respect to any Previous Year which could have\nstill been met in future years), will accelerate and become immediately vested and exercisable, regardless of the actual occurrence or\nfailure to occur of any of the future performance targets relating to those RSUs.\n\n \n\nIn the event of resignation\nby Formula’s chief executive officer not for Good Reason (as defined in the grant), Formula’s chief executive officer RSUs\nwill vest, in an accelerated manner, in such portion equal to the pro-rata portion of the Vesting Period that has already lapsed (based\non the full number of Fiscal Quarters that have lapsed form January 1, 2020 until the actual resignation date, including notice period).\nHowever, any performance-based RSUs for which the applicable target was not achieved up until the resignation date (including the notice\nperiod) will expire and terminate.\n\n \n\nTotal unrecognized\ncompensation costs related to non-vested share-based compensation arrangements granted under the Formula equity incentive plan as of December\n31, 2025, 2024 and 2023 were $15,420, $20,371 and $27,703, respectively.\n\n \n\nF-85\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n20:- EMPLOYEE OPTION PLANS (Cont.)\n\n** **\n\nc)Matrix:\n\n \n\nIn December\n2022, Matrix entered into a new employment agreement with its chief executive officer, Mr. Moti Gutman, for the provision of\nmanagement services for a term of five years starting on January 1, 2023. As part of the new employment agreement, Matrix awarded\nMr. Gutman 375,000 Matrix restricted shares. 40% of the options will be vested on December 31, 2024 with the remaining amount\nvesting in equal parts on December 31, 2025, 2026 and 2027 but any case not before the publication of Matrix’s financial\nstatements for each respective year. The fair value of the restricted shares amounted on the date of grant to NIS 27,851 thousand\n(approximately $7,914).\n\n \n\nOn March 12, 2023, Matrix’s board\nof directors approved, following the approval by Matrix’s compensation committee, the allocation of 920,000 options exercisable\nup to 920,000 ordinary Matrix’s shares of NIS 1 par value, to 18 officers and senior employees of Matrix or of its controlled companies.\nUpon termination of an officer’s employment, 45,000 options were forfeited before vesting. The exercise of the options at the date of\ngrant is NIS 71.25. The price is subject to adjustment, including when distributing a dividend. 50% of the options will be vested on March\n12, 2025, with the remaining amount vesting in equal parts on March 12, 2026 and 2027.\n\n \n\nThe fair value of the options was estimated\non the date of grant using the Binomial model based on the terms which are: risk-free interest rate is 3.34%-4.53%, early exercise factor\nis 130% and expected volatility is 31%. The contractual life of the options is 5 years from the date of grant.\n\n \n\nOn August 9, 2023, Matrix’s board\nof directors approved, following the approval by Matrix’s compensation committee, the allocation of 45,000 options exercisable up\nto 45,000 ordinary Matrix’s shares of NIS 1 par value, to a senior employee of Matrix. The exercise of the options at the date of\ngrant is NIS 73.73. The price is subject to adjustment, including when distributing a dividend. 50% of the options will be vested in August,\n2025, with the remaining amount vesting in equal parts on August 10, 2026 and 2027. The contractual life of the stock options is 5 years\nfrom the grant date.\n\n \n\nOn 15 May 2024, Matrix’s board of directors approved, following\nthe approval by Matrix’s Compensation Committee, the allocation of 20,000 options exercisable up to 20,000 ordinary shares of Matrix,\nNIS 1 par value, to a senior employee of Matrix. The exercise of the options at the date of grant is NIS 78.55. The price is subject to\nadjustment, including when distributing a dividend. 50% of the options will be vested in 15 May 2026, with the remaining amount vesting\nin equal parts on May 15, 2027 and 2028. The contractual life of the stock options is 4 years from the grant date. The fair value of the\noptions is estimated on the grant date at NIS 19.05 per option.\n\n \n\nThe following table\nsummarizes Matrix’s employee stock-based compensation activity during the year ended December 31, 2025:\n\n \n\n  \n**Number**\n\n**of options, RSU and RS**\n   Weighted average exercise price)$)  \n**Weighted average remaining contractual term**\n\n**(in years)**\n   Aggregate intrinsic value \n\nOutstanding as of January 1, 2025   1,315,000    13.01    3.16    13,816 \n\nGranted   -    -           \n\nExpired and forfeited   (22,500)   20.30         \n \n \n\nExercised   (511,000)   12.68           \n\n                     \n\nOutstanding as of December 31, 2025   781,500    12.25    2.16    10,006 \n\nExercisable as of December 31, 2025   75,000    \n \n         \n \n \n\n \n\nF-86\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n20:- EMPLOYEE OPTION PLANS (Cont.)\n\n \n\nThe aggregate intrinsic\nvalue provided in the table above represents the total intrinsic value that would have been received by the option holders had all option\nholders exercised their options on the respective dates. This value would change based on the change in the market value of Matrix’s\nordinary shares and the change in the exchange rate between the New Israeli Shekel and dollar. Total unrecognized compensation costs related\nto non-vested share-based compensation arrangements granted under the Matrix equity incentive plan as of December 31, 2025, 2024 and 2023\nwere $1,787, $3,898 and $8,808, respectively.\n\n \n\nd)Sapiens:\n\n \n\nThe following table\nsummarizes Sapiens’ stock-based compensation activity during the year ended December 31, 2025:\n\n \n\n   Amount of options  \nWeighted\n\naverage\n\nexercise\n\n**price**\n   Weighted average remaining contractual life (in years)   Aggregate intrinsic value \n\nOutstanding as of January 1, 2025   1,668,000    24.96    3.11    4,977 \n\nGranted   266,143                \n\nExpired and forfeited   (346,969)               \n\nExercised   (131,281)               \n\nReclassification of shared-based compensation to liability   (1,455,893)               \n\n                     \n\nOutstanding as of December 31, 2025   \n-\n    \n-\n    -    - \n\nExercisable as of December 31, 2025   \n-\n    -    -    - \n\n \n\nIn 2025, 2024 and\n2023 , Sapiens granted 266,143, 145,000 and 429,500 stock options, respectively, to its employees and directors to purchase its shares.\nThe total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $1,913 and $851, respectively.\n\n \n\nFollowing the completion\nof the sale of Sapiens shares, as described in Note 1 -General and Note\n13 - Disposal group held for sale and discontinued operations, on December\n17, 2025, the acquisition of Sapiens by Advent (the “Acquisition”) was completed. Under the terms of the transaction, upon\nclosing of the Acquisition, the vesting of approximately 58% of (i) the then-unvested outstanding options and (ii) the then-outstanding\nunvested restricted share units (“RSUs”) was accelerated. Each vested RSU (whether previously vested or vested due to the\naforementioned acceleration) was settled in cash in an amount equal to the cash consideration per share in the Acquisition (i.e., $43.50),\nwhereas each vested option to purchase one common share (whether previously vested or vested due to the aforementioned acceleration) was\nsettled for cash in an amount equal to the excess, if any, of the cash consideration per share in the Acquisition (i.e., $43.50) over\nthe exercise price of such option. Total cash paid in settlement of vested RSUs and options amounted to approximately $23,000 (in thousands\nof U.S. dollars) and was paid by Advent at the closing of the Acquisition. In respect of these payments, Sapiens recognized a shareholders’\ncapital contribution reserve of approximately $15,000 (in thousands of U.S. dollars), recorded against share-based compensation expenses\nin its books. The total equity-based compensation expense related to all of Sapiens’ equity-based awards, recognized for the years\nended December 31, 2025, 2024 and 2023, after adjustment to comply with IFRS, amounted to $18,382, $2,952 and $3,621, respectively (in\nthousands of U.S. dollars).\n\n \n\nF-87\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n20:- EMPLOYEE OPTION PLANS (Cont.)\n\n \n\ne)Michpal:\n\n \n\nIn December 2024,\nMichpal’s Board of Directors approved the “2024 Equity Incentive Plan” (the “Plan”) for the grant of options,\nshare units (RSUs), shares, and restricted shares to the Company’s officers, employees, and directors.\n\n \n\nOn April 1, 2025,\nthe Company granted 504 restricted ordinary shares to officers of the Company, for no consideration, which are held in trust by a trustee\n(the “Restricted Shares”). The Restricted Shares vest and\nare released from restrictions in 20 equal quarterly tranches over a period of five years commencing on December 31, 2023, such that four\ntranches vested and were released from restriction on the grant date, and the remaining tranches vest and are released from restriction\nin equal portions over 16 consecutive quarters from January 1, 2025 through December 31, 2028.\n\n \n\nIn addition, with\nrespect to each calendar year, the vesting of tranches relating to 378 Restricted Shares is subject to the condition that Michpal’s\noperating profit, excluding share-based payment expenses, as presented in the Company’s annual financial statements for the relevant\ncalendar year, exceeds 80% of 105% of the operating profit for the preceding year (the “Profit Target”).\nBased on Michpal’s financial statements for the year 2025, it met the Profit Target for that year, and accordingly, the relevant\ntranches of the Restricted Shares vested.\n\n \n\nFor the purpose of\nmeasuring the grant-date fair value, the Company performed a valuation using the discounted cash flow (DCF) method. The fair value of\nthe grant was estimated at NIS 15,445 thousand (approximately $4,474).\n\n \n\nDuring the reporting\nperiod, the Company recognized expenses of NIS 10,201 thousand (approximately $2,955), which were included in operating expenses as part\nof general and administrative expenses.\n\n \n\nf)Magic Software:\n\n \n\nStock Option Plan\nof Comm-IT Technology Solutions Ltd (“Comm-IT Solutions”), a subsidiary of Magic Software:\n\n \n\nUnder the Comm-IT\nSolutions’ 2022 Stock Option Plan, (“Comm-IT Solutions 2022 Plan”), options may be granted to employees, officers, directors\nand consultants of Comm-IT Solutions and its subsidiaries. Pursuant to Comm-IT Solutions 2022 Plan, Comm-IT Solutions shall reserve in\nits registered and reserved capital, such sufficient number of shares (subject to any adjustment in the capital under the Comm-IT Solutions\n2022 Plan) required in order to consummate the Comm-IT Solutions 2022 Plan.\n\n \n\nIn December 2022,\nComm-IT Solutions, awarded 12 of its senior officers 4,028 options to purchase 4,028 shares of Comm-IT Solutions. 827 of the options have\nfully vested upon their grant, whereas the vesting of the remainder of the options are subject to Comm-IT Solutions and its subsidiaries\nmeeting certain EBITDA targets for the years 2023-2024. In 2023, Comm-IT Solutions fully\nachieved plan EBITDA targets. Subject to the EBITDA targets to be met, as well as the officers continued employment with Comm-IT\nSolutions throughout 2027, the options will vest at certain points in time throughout the years 2024 to 2027.\n\n \n\nIn May 2024,\nComm-IT Solutions awarded 116 options to four of its senior officers to purchase 116 shares of Comm-IT Solutions. The options were\ngranted under the Comm-IT Solutions 2022 Plan, at an exercise price of $1,822 per share. The options are subject to a vesting\nschedule and performance conditions similar to those applicable to the options granted in December 2022, including the achievement\nof EBITDA targets and continued employment through 2027.\n\n \n\nF-88\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n20:- EMPLOYEE OPTION PLANS (Cont.)\n\n \n\nIn April 2025, Comm-IT\nawarded 44 options to one of its senior officers to purchase 44 shares of Comm-IT. The options were granted under the Comm-IT Solutions\n2022 Plan, at an exercise price of $1,591.56 per share. The options are subject to a vesting schedule and performance conditions similar\nto those applicable to the options granted in December 2022, including the achievement of EBITDA targets and continued employment through\n2027.\n\n \n\nA summary of employee\noption activity under the Comm-IT Solutions 2022 Plan as of December 31, 2025, and changes during the year ended December 31, 2025 are\nas follows:\n\n \n\n  \n**Number of options**\n   Weighted average exercise price  \n**Weighted average remaining contractual term**\n\n**(in years)**\n \n\nOutstanding as of January 1, 2025   3,693    252.74    5.94 \n\nGranted   44    1,783.5      \n\nExercised   (2,935)   \n \n      \n\n                \n\nOutstanding as of December 31, 2025   802    1,237.7    4.94 \n\n                \n\nExercisable as of December 31, 2025   656    1,158.1    4.94 \n\n                \n\nAs of December 31,\n2025, there was $85 of total unrecognized compensation cost related to non-vested options of Comm-IT Solutions, which is expected to be\nrecognized in full over a weighted average period of 1 year.\n\n \n\nThe options outstanding\nas of December 31, 2025, have been separated into exercise price categories, as follows:\n\n \n\nRanges of Exercise price   Options outstanding  \n**Weighted average\nremaining\ncontractual life**\n   Options exercisable  \n**Weighted average\nexercise price of\nexercisable options**\n \n\n$       (Years)       $ \n\n 37.96    183    4.94    183    38 \n\n 1,591.56    609    4.94    473    1,591.56 \n\n      802    4.94    656    1,158.1 \n\n \n\nEmployee benefits\nconsist of post-employment benefits, other long-term benefits and termination benefits.\n\n \n\na)Post-employment benefits:\n\n \n\nAccording to the\nlabor laws and Severance Pay Law in Israel, the Israeli companies in the Group are required to pay compensation to an employee upon dismissal\nor retirement or to make current contributions in defined contribution plans pursuant to section 14 of the Severance Pay Law, as specified\nbelow. These liabilities are accounted for as a post-employment benefit. The computation of the Group’s employee benefit liability\nis made according to the current employment contract based on an employee’s salary and employment term which establish the entitlement\nto receive the compensation.\n\n \n\nF-89\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n20:- EMPLOYEE BENEFIT LIABILITIES (Cont.)\n\n \n\nThe post-employment\nemployee benefits are normally financed by contributions classified as a defined contribution plan or as a defined benefit plan, as detailed\nbelow.\n\n \n\n1)Defined contribution plans:\n\n \n\nSection 14 of\nthe Severance Pay Law, 1963 applies to part of the compensation payments, pursuant to which the fixed contributions paid by the\nGroup into pension funds and/or policies of insurance companies release the Group from any additional liability to employees for\nwhom said contributions were made. These contributions and contributions for benefits represent defined contribution plans.\n\n \n\n2)Defined\nbenefit plans:\n\n \n\nThe\nGroup accounts for that part of the payment of compensation that is not covered by contributions in defined contribution plans, as above,\nas a defined benefit plan for which an employee benefit liability is recognized and for which the Group deposits amounts in central severance\npay funds and in qualifying insurance policies.\n\n \n\n3)Other\nlong-term benefits:\n\n \n\nCertain\nof the Company’s U.S. subsidiaries have a 401(k) defined contribution plan covering certain employees in the U.S. All eligible employees\nmay elect to contribute up to 100% of their annual compensation to the plan through salary deferrals, subject to Internal Revenue Service\nlimits. These U.S. Subsidiaries match up to 3% of the employees’ contributions up to the plan with no limitation.\n\n \n\nb)Composition of defined benefit plans is as follows:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nDefined benefit obligation \n$90,272  \n$81,216 \n\nFair value of plan assets \n (84,725) \n (70,978)\n\nNet defined benefit liability \n$5,547  \n$10,238 \n\n \n\nF-90\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n21:- Commitments and Contingencies\n\n \n\na)Liens:\n\n \n\n1)Liens\nhave been incurred by Formula over a certain portion of the Matrix’s shares which it held. As of December 31, 2025 Formula has\ncollateral in connection with the Series C Secured Debentures and Series D Secured Debentures issued by Formula on the TASE (see Note\n17).\n\n \n\n  2) Composition of pledged shares of Matrix owned by Formula as of December 31, 2025:\n\n \n\n  \nDecember 31, 2025 \n\n** **** **\n**Formula’s Series D Secured Debentures**** **** **\n**Formula’s Series C Secured Debentures**** **\n\nMatrix ordinary shares, par value NIS 1.0 per share \n 2,350,272  \n 2,265,931 \n\n \n\nIn August 2022, following the private placement of an additional NIS\n200,000 thousand par value Series C Secured Debentures. Following the transactions carried out with Sapiens and Magic (see Notes 13 and\n26), and upon the partial repayment of the bond principal, the pledged shares of Sapiens and Magic were substituted with shares of Matrix,\nand a portion of the pledged shares of Matrix was released, respectively, all subject to the terms as defined on the deed of trust. As\nof December 31, 2025, Formula pledged 2,265,931 shares of Matrix (see Note 17). \n\n \n\nF-91\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n21:- COMMITMENTS AND CONTINGENCIES (Cont.)\n\n \n\nIn September 2024, following the private placement of an NIS 150,000\nthousand par value Series D Secured Debentures. Following the transactions carried out with Sapiens and Magic (see Notes 13 and 26), the\npledged shares of Sapiens and Magic were substituted with shares of Matrix, all subject to the terms as defined on the deed of trust.\nAs of December 31, 2025, Formula pledged 2,350,272 shares of Matrix (see Note 17).\n\n \n\nDuring\n2025 Michpal pledged the shares of its subsidiary, Mishmarot (See note 3), as collateral to secure the repayment to an Israeli financial\ninstitution.\n\n \n\nb)Guarantees:\n\n \n\nAs of December 31, 2025, the Group\nprovided performance bank guarantees in an aggregate amount of approximately $53,300 as security for performance of various contracts\nwith customers and suppliers. As of December 31, 2025, the Group provided bank guarantees in an aggregate amount of approximately $5,600\nas security for rent to be paid for its leased offices. As of December 31, 2025, the Group had restricted bank deposits in an aggregate\namount of $900 in favor of the above-mentioned bank guarantees. In addition, The Company and its subsidiaries provided certain cross guaranties\nin favor of certain subsidiaries in the Group.\n\n \n\nEach of Matrix, Magic Software, Michpal\nand Formula provides cross guarantees to its subsidiaries.\n\n \n\nc)Covenants:\n\n \n\nIn connection with\nthe Group’s debentures and credit facility agreements with banks and other financial institutions, as of December 31, 2025, the\nGroup committed to the following:\n\n \n\n1)Formula\n\n \n\ni)Formula’s Debentures\n\n \n\nIn accordance with\nFormula’s indenture for its Series C and Series D Secured Debentures, Formula has undertaken to comply with the following financial\ncovenants and obligations:\n\n \n\nA covenant not to distribute\ndividends unless (i) Formula shareholders’ equity attributable to Formula Systems shareholders is at least $370,000; (ii) Formula’s\nnet financial indebtedness (financial indebtedness offset by cash, marketable securities, deposits and other liquid financial instruments)\nshall not exceed 50% of net CAP (defined as financial indebtedness, net, plus shareholders’ equity); (iii) the aggregate amount\nof distributions from January 1, 2022 shall not exceed the aggregate amount of net income for the year ended December 31, 2021 together\nwith 75% of accumulated profits from January 1, 2022 until the respective distribution date; and (iv) no event of default shall have occurred.\n\n \n\nF-92\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\n**NOTE 21:- COMMITMENTS AND CONTINGENCIES (Cont.)**\n\n \n\nFinancial\ncovenants, including: (i) the equity attributable to Formula Systems shareholders, as reported in Formula’s annual or\nquarterly financial statements, shall not be less than $325 million (as of December 31, 2025, Formula equity attributable to Formula\nSystems’ shareholders was approximately $1,363,137); (ii) Formula’s net financial indebtedness (financial indebtedness\noffset by cash, marketable securities, deposits and other liquid financial instruments) shall not exceed 65% of net CAP (defined as\nfinancial indebtedness, net, plus total equity) (as of December 31, 2025 Formula’s net financial indebtedness was (87.45%) of\nnet CAP); (iii) the ratio of Formula’s net financial indebtedness to the last twelve-months period EBITDA will not exceed 5\n(all based on the Company’s quarterly and annual consolidated financial statements) (as of December 31, 2025 the ratio of\nFormula’s net financial indebtedness to EBITDA was (4.63)); and (iv) at all times, Formula’s cash balance on a\nstand-alone basis will not be less than the semi annual interest payments for the unpaid principal amount of Series C and Series D\nSecured Debentures (as of December 31, 2025 Formula’s cash balances exceed the semi annual interest payments amount). Standard\nevents of default, including, among others:\n\n \n\n1.Suspension of trading of the debentures on the TASE over\na period of 60 days;\n\n \n\n2.If the rating of the debentures is less than BBB- by Standard\nand Poors Maalot or equivalent rating of other rating agencies;\n\n \n\n3.Failure to have the debentures rated over a period of 60 days;\n\n \n\n4.If there is a change in control without consent of the rating\nagency; and\n\n \n\n5.If Formula fails to continue to control any of its subsidiaries;\n\n \n\n2)Matrix\n\n \n\nA.In the context of Matrix’s engagements with banks and\nfinancial institutions for its credit facilities, Matrix has undertaken to comply with the following financial covenants, as they are\nexpressed in its financial statements:\n\n \n\n(i)The total rate of Matrix’s financial debts and liabilities\nto banks with the addition of debts in respect of debentures that have been and/or will be issued by Matrix and shareholders’ loans\nthat have been and/or will be granted to Matrix (collectively, the “debts”) will not exceed 40% of its total balance sheet.\n\n \n\n(ii)The ratio of Matrix’s net debt to the annual EBITDA\nwill not exceed 3.5.\n\n \n\n(iii)Matrix’s equity shall not be lower than NIS 275,000\nthousand (approximately $86,207) at all times.\n\n \n\n(iv)Matrix’s cash and cash equivalents and short-term bank\ndeposits shall not be less than NIS 50,000 thousand (approximately $15,674). In the context of Matrix’s issuance of Commercial\nSecurities which are not listed, Matrix committed to maintain at least NIS 450,000 thousand (approximately $141,066) of liquid assets\nincluding unused approved bank credits. Such liquid assets should account for not less than NIS 200,000 thousand of cash and cash equivalent\nand short-term bank deposit (approximately $62,696).\n\n \n\n(v)Matrix has committed that the rate of ownership and control\nof Matrix-Systems Ltd. shall never be below 50.1%.\n\n \n\n(vi)Matrix will not create any pledge on all or part of its property\nand assets in favor of any third party and will not provide any guarantee to secure any third party’s debts as they are today and\nas they will be without the banks’ consent (except for a first-rate fixed pledge on an asset which acquisition will be financed\nby a third party and which the pledge will be in his favor).\n\n \n\n(vii)Matrix will not sell and/or transfer all or part of its assets\nto others in any manner whatsoever without the banks’ advance written consent unless it is done in the ordinary course of business.\n\n \n\nF-93\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n21:- COMMITMENTS AND CONTINGENCIES (Cont.)\n\n \n\nB.Matrix Series B Debentures:\n\n \n\nIn accordance with\nMatrix’s indenture for its Series B Debentures, Matrix has undertaken to comply with the following financial covenants and obligations:\n\n \n\n  (i) Matrix shareholders’ total equity (all based on Matrix’s quarterly or annual consolidated financial statements, and as defined in Matrix’s Series B Debentures’ deed of trust) shall not be less than NIS 275,000 thousand (approximately $86,207) Series B Debentures, or NIS 400,000 thousand (approximately $125,392) for Convertible Debentures, respectively. As of December 31, 2025, Matrix shareholders’ total equity (all based on Matrix’s 2025 annual consolidated financial statements, and as defined in Matrix’s Series B Debentures’ deed of trust) was approximately NIS 1,214,593 thousand (approximately $380,750).\n\n \n\n  (ii) Matrix’s net financial indebtedness (all based on Matrix’s quarterly or annual consolidated financial statements, and as defined in Matrix’s Series B Debentures’ deed of trust) shall not exceed 45% of Matrix total assets (all based on Matrix’s quarterly or annual consolidated financial statements, and as defined in Matrix’s Series B Debentures’ deed of trust). As of December 31, 2025, Matrix’s net financial indebtedness (all based on Matrix’s 2025 annual consolidated financial statements, and as defined in Matrix Series B Debentures’ deed of trust) was (3.3%) of total assets.\n\n \n\n  (iii) The ratio of Matrix’s net financial indebtedness (as defined in Matrix’s Series B Debentures’ deed of trust) to the last twelve-months period EBITDA (as defined in Matrix Series B Debentures’ deed of trust) will not exceed 5 (all based on Matrix’s quarterly and annual consolidated financial statements). As of December 31, 2025, the ratio of Matrix’s net financial indebtedness to EBITDA (all based on Matrix’s 2025 annual consolidated financial statements, and as defined in Matrix’s Series B Debentures’ deed of trust) was (0.21).\n\n \n\n3)Magic\nSoftware\n\n \n\nUnder the terms of\nthe loans with an Israeli financial institution, Magic Software has undertaken to comply with the following financial covenants, as they\nwill be expressed in its consolidated financial statements:\n\n \n\n(i)Magic Software’ equity will not be lower than $150\nmillion (one hundred and fifty million U.S. Dollars at all times);\n\n \n\n(ii)The ratio of Magic Software’ total financial debts less\ncash to total assets will not exceed 30%; and\n\n \n\n(iii)The ratio of Magic Software’s total financial debts\nless cash, short-term deposits and short-term marketable securities to operating income will not exceed 3.25.\n\n \n\n4)Michpal\n\n \n\nUnder the terms of\nthe loans with an Israeli financial institution, Michpal has undertaken to comply with financial covenants.\n\n \n\nF-94\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 21:- COMMITMENTS\nAND CONTINGENCIES (Cont.)\n\n \n\nAs\nof December 31, 2025, each of Formula, Matrix, Magic Software and Michpal complied with all of its financial covenants.\n\n \n\nd)Legal proceedings:\n\n \n\n1)On November 23, 2020,\nOlir Trade and Industries Ltd. (“Olir”) filed a derivative action and a motion to certify a derivative action, with the District\nCourt (Economic Division) of Tel Aviv-Jaffa, Israel (Derivative Action No. 58348-11-20) (the “Claim” and the “Motion\nto Certify”, respectively) (as reported in the Company’s Report of Foreign Private Issuer on Form 6-K furnished to the Securities\nand Exchange Commission on December 9, 2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim,\non the Company’s behalf, against each of the Company’s five directors, as well as the Company’s chief executive officer\n(the “CEO”), Mr. Guy Bernstein, and chief financial officer, Mr. Asaf Berenstin (the “CFO”), as defendants. The\nCompany and the named defendants are all listed as respondents to the Motion to Certify. The Claim challenges the legality, under the\nIsraeli Companies Law, 5759-1999 (the “Companies Law”), of compensation awarded to the Company’s CEO and CFO, including\npast engagements with the CEO and the recent re-approval by the Company’s compensation committee and board of directors (as reported\nin the Company’s Report of Foreign Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on November 4,\n2020), of the eight-year equity-based award of compensation—in the form of 611,771 restricted share units— to the Company’s\nCEO. The Claim includes allegations of breaches of fiduciary duties (duty of care and duty of loyalty) and the oppression of minority\nshareholders and unjust enrichment. The Claim seeks an accounting from the defendants as to the alleged harm caused to the Company, as\nwell as compensation to the Company for such harm. The Claim also seeks a declaratory order preventing the board of directors from using\nvoting powers allegedly granted to it under agreements related to the Company’s ADSs. The Company rejects all claims made by Olir\nand believe that all actions taken by its board of directors and its committees were taken in accordance with the Companies Law and based\nupon advice of legal counsel. All respondents intend to vigorously defend against the Motion to Certify and on May 13, 2021 all respondents\nfiled their responses to the Motion to Certify.\n\n \n\nOn\nJanuary 24, 2023, the Company submitted a request for dismissal in limine of the motion to certify due to a change in the factual grounds\nof the motion including, among other things, the reapproval of the compensation given to the CEO by a new and independent board of directors\nmade on January 15, 2023. The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations\nhearing was held on January 31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the\nrequest for dismissal in which they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On April\n13,2023 the Company submitted its response to Olir’s response. On September 18, 2023 Olir filed its briefs. On December 3, 2023, the Company\nfiled a motion to render a decision in the motion to dismiss in limine. On December 5, 2023 the court granted the Company with a motion\nto dismiss in limine, and ordered the Company to pay Olir’s costs in the amount of NIS 45 thousand. On January 25, 2024 Olir filed and\nappeal against the District Court’s decision, with the Supreme Court. Olir failed to attach to its appeal the pleadings regarding the\nmotion to dismiss. On March 26, 2024 the Company and all other respondents notified the Supreme Court that they believe that Olir acted\nin bad faith and contrary to the rules of law, when it did not attach essential documents to the notice of appeal and drafted a misleading\nnotice of appeal. The respondents argued that those actions had real implications on the pre-appeal hearing, as the court lacked the respondents’\nposition and claims. Therefore, the respondents requested that their position be heard at a bench hearing of the court.\nOn October 22, 2025, all the respondents filed their response to the appeal. A bench hearing is now scheduled for July 15, 2026.. At this\nstage of the proceedings, we believe that the chances for the approval of Olir’s Motion to Certify are low.\n\n \n\nF-95\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 21:- COMMITMENTS\nAND CONTINGENCIES (Cont.)\n\n \n\n2)On December 24, 2019,\na motion for the approval of a class action (#60508-02-20), in an amount of NIS 793,800 thousands (approximately $217,658), was filed\nagainst our subsidiary ZAP Group with the Israeli district court (central district), claiming that ZAP Group had allegedly generated\nincome illegally from paying customers through the ‘ZAP’s price comparison’ website. At the pre-trial hearing, it was\ndecided that the plaintiffs would file an explanation to the court as to why they believed they were fit to serve as class action plaintiffs\nand why they had performed prohibited clicks on their competitor’s websites through ZAP Group’s website. In addition, the\nplaintiffs were requested to update whether they were willing to reduce the amount of the claim. On July 15, 2021, the plaintiffs filed\na motion to reduce the amount of the claim to NIS 63,000 thousands (approximately $17,274). On December 15, 2021, a pre-trial hearing\ntook place, in which the court clarified that it does not intend to interfere with ZAP Group’s business considerations regarding\nthe click filtering mechanisms that it operates. The court recommended that the plaintiffs reach an agreed solution with ZAP Group on\nthe issue of the necessary disclosure that ZAP Group should include in its contracts with customers (as available on its website). The\nparties were requested to file a joint notice in accordance with the court’s recommendation by January 15, 2022. The plaintiffs\nsubmitted a request for an extension to file the notice. On April 5, 2022, the plaintiffs filed a notice with the court stating that\nthey had not reached agreements with ZAP Group and therefore seek to set the case for evidentiary hearing. On December 12, 2022 the parties\nfiled a joint notice with the court stating their agreement to initiate a mediation process. A mediation meeting took place on February\n6, 2023. The mediation ended without the parties reaching an agreement. As a result, evidentiary hearings were held between March 6,\n2024, and July 10, 2024, during which expert and fact witnesses from both sides were examined. Subsequently, deadlines were set for the\nsubmission of the parties’ summations. On August 8, 2024, the parties informed the court that they had reached an agreement to\nrefer the matter to a mediation process before another judge of the same court. Accordingly, mediation sessions were scheduled to take\nplace on December 11, 2024, and January 21, 2025, before Judge Rami Haymovitz. On March 3, 2025, the plaintiffs’ counsel informed\nthe court that there had been disagreements between the defendants and their counsel over the course of the mediation, and requested\nthat the court determine as to whether they could continue to represent the plaintiffs in the case. On March 24, 2025, as a result of\na hearing, the court requested that the plaintiffs’ counsel and Zap Group propose terms for a settlement of the litigation on or\nbefore June 4, 2025 that the plaintiffs could review and determine whether to accept. On May 20, 2025, the plaintiffs filed a motion\nwith the court seeking to replace their legal representation and to dismiss their current class counsel, citing a breakdown in trust\nand lack of adequate representation. In addition, the plaintiffs requested that the court suspend any judicial decision in connection\nwith the proposed settlement arrangement until such replacement of counsel is completed. On May 22 and May 26, 2025, responses opposing\nthe plaintiffs’ motion were filed by the existing class counsel (whom the plaintiffs sought to replace) and by Zap Group. On June\n9, 2025, the court issued a decision determining that the process relating to the settlement arrangement would continue. The court further\ninstructed the parties to submit a settlement agreement by July 8, 2025, and indicated that only following its submittal it would determine\nhow to proceed, including how to address the plaintiffs’ request to replace their representation and the continued management of\nthe case. On July 22, 2025, the court held a hearing and determined that the plaintiffs’ arguments would be heard only after the\nsubmission of responses to the motion for approval of the class action. On August 5, 2025, Zap and the existing class counsel filed a\nmotion for approval of a proposed settlement arrangement. The court instructed that the motion be forwarded to the Attorney General for\nreview and that the plaintiffs be permitted to submit their responses within the prescribed timeframe. On November 16, 2025, the court\nissued a decision instructing the publication of a notice regarding the proposed settlement arrangement and declined to dismiss it outright\nat that stage. The court further determined that the position of the Israeli Attorney General, as well as any objections submitted by\nthe plaintiffs, would be considered prior to any final decision regarding approval of the settlement arrangement. Following the publication\nof the proposed settlement arrangement in accordance with the court’s instructions, including publication in newspapers and on\nZap Group’s websites, the position of the Attorney General was expected to be submitted by March 8, 2026. However, due to the situation\nin Israel, such position had not yet been submitted as of that date. As this claim was filed against Zap Group prior to its acquisition\nby Formula, any potential liability of Zap Group resulting from the proceedings is covered by the indemnification obligations of the\nformer shareholders of Zap Group to Formula.\n\n \n\nF-96\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 21:- COMMITMENTS\nAND CONTINGENCIES (Cont.)\n\n ** **\n\n3)On December 30, 2021,\nRonen Har Even, Galit Har Even and TV Center Ltd. (the “Plaintiffs”) submitted a monetary claim in the sum of NIS 24,500\nthousands (approximately $7,000) and a claim for the grant of a mandamus order against ZAP Group, in the District Court at Haifa (the\n“Claim”). The Plaintiffs allege that ZAP Group constitutes a monopoly in the provision of price comparison services in the\nonline arena in Israel, and excluded the Plaintiffs’ business from the E-commerce arena in Israel. According to the Plaintiffs,\nZAP Group prevented price comparisons between the prices of the Plaintiffs’ televisions and the prices of the televisions of the\nofficial importers, by causing systemic manipulations aimed at excluding the television models sold by the Plaintiffs and blurring the\nfact that they are cheaper in the search results. As mentioned in the Statement of Claim, concurrent with submission of the Claim, on\nApril 19, 2021, the Plaintiffs submitted a complaint against ZAP Group to the Israel Competition Authority, and on August 18, 2021 and\nOctober 21, 2021, submitted supplements to the aforesaid complaint. On June 1, 2022, Zap Group submitted a statement of defense, denying\nthe Plaintiffs’ allegations and in particular the Plaintiffs’ argument that Zap Group has a monopoly in the provision of\nprice comparison services in the online arena in Israel. Following discovery and pre-trial hearings, the Plaintiffs and ZAP Group submitted\naffidavits of primary testimony in June 2024 and July 2024, respectively. On January 28, 2025, evidentiary hearings began. The court\nordered the plaintiffs to complete witness testimony by March 1, 2025, and scheduled further hearings through October 2025. On May 25,\n2025, the Plaintiffs filed a motion to submit additional evidence, attaching the proposed evidence to their motion. On June 15, 2025,\nZap Group filed its response, strongly opposing the motion to admit additional evidence. On June 26, 2025, the court issued a ruling\ndenying the Plaintiffs’ motion to submit additional evidence and ordering the Plaintiffs to pay costs in favor of the Company in\nthe amount of NIS 2,500. On July 10, 2025, Zap Group filed a motion with the court to strike the statement of claim, or in the alternative,\nto determine that only the evidence that had been admitted into the record shall be used and shall be binding in the framework of the\nproceedings. The Plaintiffs were required to submit their response to the motion to strike by August 25, 2025. On September 28 and 29,\n2025, evidentiary hearings were held, during which the lead Plaintiff, Ronen Har Even, was examined. On October 20, 2025, an additional\nevidentiary hearing was held, at which the Plaintiffs’ expert witness, who had submitted an expert opinion regarding Zap Group’s\nalleged monopoly status in the price comparison sector, was examined. The court scheduled an additional evidentiary hearing for November\n27, 2025, at which an additional expert witness who had submitted an opinion on behalf of the Plaintiffs was examined, along with five\nadditional witnesses on behalf of the Plaintiffs. Following the conclusion of the Plaintiffs’ testimony, Zap Group submitted its\nwitness affidavits. Evidentiary hearings were scheduled for March 17, 2026 and April 29, 2026. Due to the security situation in Israel,\nthe hearing scheduled for March 17, 2026 was cancelled and replaced with a second evidentiary hearing scheduled for May 5, 2026. On February\n24, 2026, the Plaintiffs’ legal counsel filed a motion to withdraw from representation. As of the date of this filing, the Plaintiffs\nare representing themselves without formal legal representation. At the current stage of proceedings, it is not possible to estimate\nthe outcome of the claim.\n\n \n\n4)In November 2023, “Safra”,\na subsidiary of ZAP Group, was added as defendant to a lawsuit filed by the estate of the deceased Klil Kimchi, who died in an accident\nin a swimming pool in a private house during a social event organized by Safra and another company. The deceased was invited as a guest\nof the other company. The total claim is for an amount of NIS 9.645 million. The other company has filed a third-party notice against\nSafra. As of May 7, 2024, Safra submitted a statement of defense as well as a third-party notice on its behalf, and no statements of\ndefense have yet been submitted to the third-party notice submitted by the company. On November 14, 2024, a preliminary hearing was held\nin court, during which the judge suggested that the parties settle the case by paying compensation to the plaintiff. On July 3, 2025,\na settlement agreement was executed between the parties, pursuant to it was determined that Safra would pay the plaintiff an amount of\napproximately NIS 221.9 thousands (approximately $69.2 thousands). Pursuant to incident (in which the deceased died) taking place before\nZap Group acquired Safra; therefore, the liability of Zap Group resulting from the proceedings was covered by the indemnification obligations\nof the former shareholders of Safra to Zap Group. Following the payment, the proceedings against Safra were dismissed.\n\n \n\nF-97\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n \n\nNOTE 21:- COMMITMENTS\nAND CONTINGENCIES (Cont.)\n\n \n\n5)On December 3, 2023,\nour subsidiary Matrix received a request for disclosure of materials pursuant to Section 198a of the Companies Law, which was submitted\nto the District Court (Economic Division) of Tel Aviv-Jaffa by an individual who claimed to be a shareholder of Matrix. The request related\nto a potential derivative claim that could be filed by the individual, on Matrix’s behalf, against Matrix’s chief executive\nofficer and each of its directors related to the procedure for the approval of compensation awarded to Matrix’s chief executive\nofficer following the rejection of such compensation by Matrix’s general meeting of shareholders and the re-approval of that compensation\nby Matrix’s compensation committee and board of directors, respectively, acting in accordance with the Companies Law. On April\n18, 2024, Matrix filed a response to the disclosure request in which Matrix requested that the court deny, on various grounds, the request\nmade by the potential plaintiff. An inquest was held on the disclosure motion on February 2, 2025. At this stage of this legal proceeding\nwe cannot predict its outcome.\n\n \n\nIn\naddition to the above-described legal proceedings, from time to time, Formula and/or its Investees are subject to legal, administrative\nand regulatory proceedings, claims, demands and investigations in the ordinary course of business, including claims with respect to intellectual\nproperty, contracts, employment and other matters.\n\n \n\nThe\nGroup accrues a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.\nSignificant judgment is required in the determination of both the probability and as to whether a loss is reasonably estimable. These\naccruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel\nand other information and events pertaining to a particular matter. The Group intends to defend itself vigorously against the above claims,\nand it generally intends to vigorously defend any other legal claims to which it is subject. While for most litigations, the outcome\nis difficult to determine, to the extent that there is a reasonable possibility that the losses to which the Group may be subject could\nexceed the amounts (if any) that it has already accrued, the Group attempts to estimate such additional loss, if reasonably possible,\nand disclose it (or, if it is an immaterial amount, indicate accordingly). The aggregate provision that the Group has recorded for all\nother legal proceedings (other than the particular material proceedings described above) is not material.\n\n \n\ne)Insurance:\n\n \n\nThe Company and its subsidiaries and affiliates insure themselves in\nbodily injury and property damage insurance policies, including third party, professional liability and employer’s liability insurance\npolicies. Formula, Sapiens (until the Transaction with Adnent— for further information see Note 13), Magic Software, ZAP Group,\nInsync, Michpal, Shamrad, Ofek and Hashahar directors and officers (D&O) are insured under an “umbrella” policy for insurance\nof directors and officers including D&O side A DIC policy (another layer of protection for officers) acquired by the Company for itself\nand its subsidiaries, for a period of 12 months from February 14, 2025.\n\n \n\nF-98\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n22:- equity\n\n \n\nThe composition\nof the Company’s share capital is as follows:\n\n \n\n  \nDecember 31, 2025  \nDecember 31, 2024 \n\n  \nAuthorized  \nIssued  \nOutstanding  \nAuthorized  \nIssued  \nOutstanding \n\n  \n   \n   \n   \n   \n   \n  \n\nOrdinary shares, NIS 1 par value each \n 25,000,000  \n 15,901,287  \n 15,332,667  \n 25,000,000  \n 15,901,287  \n 15,332,667 \n\n \n\na.Formula’s ordinary shares, par value NIS 1 per share,\nare traded on the TASE, and Formula’s ADSs, each representing one ordinary share, are traded on the NASDAQ.\n\n \n\nb.Formula holds 568,620 of its own ordinary shares.\n\n \n\nc.In May 2023, Formula declared a cash dividend of approximately\nNIS 35,265 thousand (approximately $9,605) or NIS 2.3 per share (approximately $0.63 per share) to shareholders of record on June 5,\n2023 that was paid on June 22, 2023.\n\n \n\nd.In March 2024, Formula declared a cash dividend of approximately\nNIS 35,265 thousand (approximately $9,614 or NIS 2.3 per share (approximately $0.63 per share) to shareholders of record on April 4,\n2024 that was paid on April 18, 2024.\n\n \n\nF-99\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n22:- equity (Cont.)\n\n \n\n  e. In August 2024, Formula declared a cash dividend of approximately NIS 35,572 thousand (approximately $9,466) or NIS 2.32 per share (approximately $0.63 per share) to shareholders of record on September 12, 2024 that was paid on September 26, 2024.\n\n \n\n  f. In March 2025, in accordance with the Company’s dividend distribution policy , the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 3.45 per share (approximately $0.94 per share) and in an aggregate amount of approximately NIS 52,898 thousand (approximately $14,414). The total cash dividend was paid on May 14, 2025.\n\n \n\n  g. In May 2025, in accordance with the Company’s dividend distribution policy , the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 1.57 per share (approximately $0.44 per share) and in an aggregate amount of approximately NIS 24,072 thousand (approximately $6,743). The total cash dividend was paid on July 22, 2025.\n\n \n\n  h. In August 2025, in accordance with the Company’s dividend distribution policy , the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 1.69 per share (approximately $0.50 per share) and in an aggregate amount of approximately NIS 25,912 thousand (approximately $7,666). The total cash dividend was paid on October 28, 2025.\n\n \n\n  i. In November 2025, in accordance with the Company’s dividend distribution policy , the Company’s board of directors approved the distribution of a cash dividend in an amount of NIS 1.64 per share (approximately $0.50 per share) and in an aggregate amount of approximately NIS 25,146 thousand (approximately $7,716). The total cash dividend was paid on January 13, 2026.\n\n \n\n  j. On March 26, 2026, in light of Formula’s results for the fiscal year ended December 31, 2025, and in particular the completion of the acquisition of Sapiens by Advent in December 2025, Formula’s board of directors announced its intention to declare a special cash dividend to Formula’s shareholders in an aggregate amount of up to $200 million, following the filing of Formula’s Annual Report on Form 20-F for the fiscal year ended December 31, 2025, which is expected by mid-May 2026. The actual declaration of such dividend, including the determination of the record date and payment date, remains subject to the board’s final approval and satisfaction of the conditions for dividend distribution under Israeli law. For further information see Note 26.\n\n \n\n \nk.\nFor further information concerning Formula’s employees and officers share-based plans, see Note 20.\n\n \n\n \nl.\nSee Note 26 about subsequent events.\n\n \n\nF-100\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n23:- TAXES ON INCOME\n\n \n\na.Israeli taxation:\n\n \n\n1)Corporate tax rate in Israel:\n\n \n\nTaxable income of\nIsraeli companies was generally subject to corporate tax at the rate of 23% in 2025, 2024 and 2023. Some of our Israeli subsidiaries are\neligible for certain tax benefits, as described below.\n\n \n\n2)Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Law”):\n\n \n\nAmendment 73 to\nthe Law:\n\n \n\nIn December\n2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) 2016,\nwhich includes Amendment 73 to the Law for the Encouragement of Capital Investments (the “2017 Amendment”) was published\nand was pending the publication of regulations, in May 2017 regulations were promulgated by the Finance Ministry to implement the\n“Nexus Principles” based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project.\nFollowing the publication of the regulations the 2017 Amendment became fully effective. According to the 2017 Amendment, a Preferred\nTechnological Enterprise, as defined in the 2017 Amendment, with total consolidated revenues of the group companies is less than NIS\n10 billion, shall be subject to 12% tax rate on income derived from intellectual property (in development area A - 7.5% tax rate).\nIn order to qualify as a Preferred Technological Enterprise certain criteria must be met, such as a minimum ratio of annual R&D\nexpenditure and R&D employees, as well as having at least 25% of annual revenues derived from exports. A Preferred Technology\nEnterprise that acquires Benefited Intangible Assets from a foreign company for more than NIS 200 million after January 1, 2017,\nwill be eligible for 12% reduce tax rate on capital gain upon sale of the Benefited Intangible Assets. The 2017 Amendment further\nprovides that a technology company satisfying certain conditions will qualify as a Special Preferred Technology Enterprise\n(“SPTE”) (an enterprise for which, among others, total consolidated revenues of its parent company and all subsidiaries\nis at least NIS 10 billion) and will thereby enjoy a reduced corporate tax rate of 6% on PTI regardless of the company’s\ngeographic location within Israel. In addition, a SPTE will enjoy a reduced corporate tax rate of 6% on capital gain derived from\nthe sale of certain “Benefited Intangible Assets” to a related foreign company if the Benefited Intangible Assets were\neither developed by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017.\n\n \n\nStarting from 2017\nunder Amendment 73 to the Investment Law, part of the Group’s taxable income in Israel is entitled to a preferred 12% tax rate.\nSince 2019, under SPTE the tax rate for part of the Group’s taxable income in Israel has been reduced to a 6% corporate tax rate.\n\n \n\nAmendment 74 to\nthe Encouragement Law:\n\n \n\nOn November 15,\n2021, the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021\n(the “Economic Efficiency Law”), was enacted. This Law establishes a temporary order allowing Israeli companies to\nrelease tax-exempt earnings (“trapped earnings” or “accumulated earnings”) accumulated until December 31,\n2020, through a mechanism established for a reduced corporate income tax rate applicable to those earnings (the “Temporary\nOrder”).\n\n \n\nF-101\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\nIn addition to the\nreduced corporate income tax (CIT) rate, Article 74 to the Encouragement Law was amended whereby effective from August 15, 2021, for any\ndividend distribution (including a dividend as per Article 51B to the Encouragement Law) by a company which has trapped earnings, there\nwill be a requirement to allocate a portion of that distribution to the trapped earnings.\nThe tax-exempt income is attributable to certain Group members’ previous status as “Approved Enterprise” and “Benefited\nEnterprise”. Such tax-exempt income cannot be distributed to shareholders without subjecting the Company to payable income taxes.\nIf dividends are distributed from previous tax-exempt profits, the Company will be liable for income tax at the rate applicable to its\nprofits from the Approved Enterprise in at the tax rate enacted in the year in which the income was earned.\nAccording to the Temporary Order, the reduction of CIT will apply to earnings that are released (with no requirement for an actual distribution)\nwithin a period of one year from the date of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion\nof the trapped earnings that are released in relation to the total trapped earnings, and on the applicable CIT rate in the years the earnings\nwere generated. Consequently, the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the\ndistribution. The minimum tax rate is 6%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial\nenterprise a designated amount in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year\nin which the election is made. The designated investment should be utilized for the acquisition of production assets, and/or investments\nin research and development and/or compensation to additional new employees.\nAccording to IAS 12, a deferred tax liability would generally be recorded relating to corporate taxes that would be owed on the distribution\nof profits if management has currently the intention to declare dividends of its tax-exempt earnings.\n\n \n\nIn November 2022,\nMagic Software elected to benefit from the Temporary Order and pay the reduced CIT as per the provisions of the Economic Efficiency Law\nin respect of its total accumulated tax-exempt earnings amounting to NIS 25,022 thousand (approximately $7,100), and accordingly recognized\ndeferred tax liability of NIS 2,502 (approximately $711), which was subsequently realized upon the actual filing of the application in\n2022 and the payment of related taxes. As a result, as of December 31, 2022 all of Magic Software’s trapped earnings were released.\n\n \n\n3)Tax benefits under the Israeli Law for the Encouragement of Industry (Taxes), 1969:\n\n \n\nThe Group’s\nmanagement believes that certain of its Israeli operations currently qualify as Industrial Companies within the meaning of the Law for\nthe Encouragement of Industry (Taxes), 5729-1969 (the “Industrial Encouragement Law”). Pursuant to the Industry Encouragement\nLaw, a company qualifies as an Industrial Company if it is an Israeli resident company which was incorporated in Israel and at least 90%\nof its income in any tax year (other than income from certain government loans) is generated from an “Industrial Enterprise”\nthat it owns and located in Israel or in the “Area,” in accordance with the definition under Section 3A of the Israeli Income\nTax Ordinance (New Version) 1961, or the Ordinance. An “Industrial Enterprise” is defined as an enterprise which is held by\nan Industrial Company whose major activity, in any given tax year, is industrial production.\n\n \n\nF-102\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\nAn Industrial Company\nis entitled to certain corporate tax benefits, including:\n\n \n\ni.Amortization of the cost of purchased patents, or the right to use a patent or know-how or certain other\nintangible property rights (other than goodwill) that were purchased in good faith and are used for the development or promotion of the\nIndustrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised;\n\n \n\nii.The right to elect, under certain conditions, to file a consolidated tax return together with Israeli\nIndustrial Companies controlled by it; and\n\n \n\niii.Expenses related to a public offering are deductible in equal amounts over three years beginning from\nthe offering year.\n\n \n\nEligibility for the\nbenefits under the Industrial Encouragement Law is not subject to receipt of prior approval from any governmental authority.\nThe Group cannot assure you that the aforementioned subsidiaries will continue to qualify as Industrial Companies or that the benefits\ndescribed above will be available in the future.\n\n \n\n4)Foreign Exchange Regulations:\n\n \n\nUnder the Foreign\nExchange Regulations, certain Israeli subsidiaries of the Group calculate their tax liability in dollars according to certain orders.\nThe tax liability, as calculated in dollars is translated into NIS according to the exchange rate as of December 31 of each year for tax\npurposes only.\n\n \n\nb.Non-Israeli subsidiaries:\n\n \n\nNon-Israeli subsidiaries\nare taxed according to the tax laws in their respective countries of residence. Deferred income taxes were provided in relation to undistributed\nearnings of non-Israeli subsidiaries, which the Group intends to distribute in the near future.\n\n \n\nThe Group intends\nto permanently reinvest undistributed earnings in the foreign subsidiaries in which earnings arose, in the vast majority of its subsidiaries.\nIf the earnings, for which deferred taxes were not provided, were distributed in the form of dividends or otherwise, the Group would be\nsubject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and non-Israeli withholding taxes.\n\n \n\nThe amount of undistributed\nearnings of foreign subsidiaries that are considered to be reinvested as of December 31, 2025 and 2024 was $173,030 and $253,637, respectively.\nHowever, a determination of the amount of the unrecognized deferred tax liability for temporary difference related to those undistributed\nearnings of foreign subsidiaries is not practicable due to the complexity of the structure of our group of subsidiaries for tax purposes\nand the difficulty of projecting the amount of future tax liability.\n\n \n\nThe amount of cash\nand cash equivalents held by the Group’s non-Israeli subsidiaries and would have been subject to income taxes if distributed as\ndividend as of December 31, 2025 and 2024 was $94,420 and $81,975, respectively.\n\n \n\nF-103\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\nc.Tax Reform - United States of America\n\n \n\nThe U.S. Tax\nCuts and Jobs Act of 2017 (“TCJA”) was approved on December 22, 2017. This legislation makes significant changes to the\nU.S. Internal Revenue Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate\ndeductions and credits, among other changes. The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% effective\nJanuary 1, 2018. In addition, the TCJA makes certain changes to the depreciation rules and implements new limits on the\ndeductibility of certain expenses and deduction. The TCJA introduced the rules for tax on the Global Intangible Low-Taxed Income\n(“GILTI”) on foreign income in excess of a deemed return on tangible assets of foreign corporations. One of our\nsubsidiaries is subject to GILTI. Except for one U.S. subsidiary which has a share interest in a subsidiary in India and one U.S.\nsubsidiary which have a share interest in several subsidiaries in Europe, all of the Group’s other subsidiaries in the United\nStates do not have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the\nGroup’s results of operations.\n\n \n\nStarting from 2022,\nthe TCJA requires taxpayers to capitalize research and development expenses with amortization periods over five years for research activities\nconducted in the United States and over fifteen years for research activities conducted outside of the United States, which has increased\nthe Group’s tax liability in the U.S.\n\n \n\nd.Net operating loss carried forward:\n\n \n\nAs of December 31,\n2025, Formula and its subsidiaries have cumulative losses for tax purposes totaling approximately $80,446, of which $71,627 was in respect\nof Israeli subsidiaries and approximately $8,819 of which was in respect of subsidiaries abroad.\n\n \n\n1)Formula\n\n \n\nAs of December 31,\n2025, Formula stand-alone had cumulative carry forward tax losses in Israel totaling approximately NIS 96,026 thousand (approximately\n$30,102), which can be carried forward and offset against taxable income in the future for an indefinite period.\n\n \n\n2)Matrix\n\n \n\nAs of December 31,\n2025, certain subsidiaries of Matrix had operating carry-forward tax losses totaling approximately NIS 18,103 thousand (approximately\n$5,675), which resulted from Israeli operations and as such can be carried forward and offset against taxable income in the future for\nan indefinite period.\n\n \n\n3)Magic Software\n\n \n\nAs of December\n31, 2025, certain subsidiaries of Magic Software had operating carry forward tax losses totaling approximately $18,344, which can be\ncarried forward and offset against taxable income in the future for an indefinite period.\n\n \n\n4)ZAP Group\n\n \n\nAs of December 31,\n2025, ZAP Group and certain of its subsidiaries had carry-forward tax losses totaling approximately NIS 53,000 thousand (approximately\n$16,614), which can be carried forward and offset against taxable income in the future for an indefinite period.\n\n \n\nF-104\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\n5)Michpal\n\n \n\nAs of December 31,\n2025, Michpal Group had carry-forward tax losses totaling approximately NIS 633 thousand (approximately $198) which can be carried forward\nand offset against taxable income in the future for an indefinite period.\n\n \n\n6)Formula Infrastructure\n\n \n\nAs of December 31,\n2025, Formula Infrastructure had carry-forward tax losses totaling approximately NIS 29,073 thousand (approximately $9,114) which can\nbe carried forward and offset against taxable income in the future for an indefinite period.\n\n \n\n7)Insync\n\n \n\nAs of December 31,\n2025, Insync had carry-forward tax losses totaling approximately $398 can be carried forward and offset against taxable income in the\nfuture for an indefinite period.\n\n \n\n \n8)\nAs of December 31, 2025 Ofek, Shamrad and Hashahar did not have any carry forward tax losses.\n\n \n\ne.Income tax assessments:\n\n \n\nFormula and its subsidiaries\nare routinely examined by various tax authorities. Below is a summary of the income tax assessments of Formula and its subsidiaries:\n\n \n\n1)Formula\n\n \n\nFormula has received\nfinal tax assessments (or assessments that are deemed final) through the tax year 2020.\n\n \n\n2)Matrix\n\n \n\nMatrix and part of\nits Israeli subsidiaries have received final tax assessments (or assessments that are deemed final) through the year 2020.\n\n \n\n3)Magic Software\n\n \n\nMagic Software and\npart of its Israeli subsidiaries have received final tax assessments through the year 2019.\n\n \n\n4)Michpal\n\n \n\nMichpal and part of its Israeli subsidiaries have received final tax\nassessments (or assessments that are deemed final) through the year 2020, except for one subsidiary whose latest tax assessment is up\nto the 2019 tax year.\n\n \n\n5)ZAP Group\n\n \n\nZAP Group and its\nsubsidiaries have received final tax assessments (or assessments that are deemed final) through the tax year 2022.\n\n \n\n6)Other than those aforementioned subsidiaries, all other Formula’s subsidiaries have received final\ntax assessments (or assessments that are deemed final) through the tax year 2020, except for one subsidiary whose latest tax assessment\nis up to the 2019 tax year.\n\n \n\nF-105\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\nf.Deferred tax liabilities, net:\n\n \n\n1)Presentation in consolidated statements of financial position:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nDeferred tax assets \n$26,915  \n$33,850 \n\nDeferred tax liabilities \n (83,426) \n (42,894)\n\n  \n$(56,511) \n$(9,044)\n\n \n\n2)Composition:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nNet operating losses carried forward \n$5,347  \n$7,494 \n\nIntangible assets, fixed asset and right-of-use assets \n (31,745) \n (33,526)\n\nLease liabilities \n 1,085  \n 1,309 \n\nDifferences in measurement basis (cash basis for tax purposes) \n \n-\n  \n 1,228 \n\nDeferred taxes on investments where the group does not control the timing of reversal \n (47,505) \n \n-\n \n\nOther \n 16,307  \n 14,451 \n\n  \n$(56,511) \n$(9,044)\n\n \n\ng.Pre-tax income:\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nDomestic (Israel) \n$112,257  \n$128,132  \n$\n99,902\n \n\nForeign \n 34,132  \n 30,733  \n \n33,352\n \n\n  \n    \n    \n   \n\nTotal \n$146,389  \n$\n158,865\n  \n$\n133,254\n \n\n \n\nh.Income tax (tax benefit) consist of the following:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nCurrent taxes \n$50,825  \n$44,900  \n$37,486 \n\nDeferred taxes \n (10,366) \n (6,127) \n (5,652)\n\n  \n    \n    \n   \n\nTotal \n$40,459  \n$38,773  \n$31,834 \n\n \n\nF-106\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\ni.Theoretical tax:\n\n \n\nThe following table\npresents reconciliation between the theoretical tax expense, assuming that all income was taxed at statutory tax rates, and the actual\nincome tax expense, as recorded in the Group’s consolidated statements of profit or loss:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nIncome before income taxes, as per the statement of operations \n$146,389  \n$\n158,865\n  \n$\n133,254\n \n\n  \n    \n    \n   \n\nStatutory tax rate in Israel \n 23% \n 23% \n 23%\n\n  \n    \n    \n   \n\nTax computed at the statutory tax rate \n 33,669  \n \n36,539\n  \n \n30,648\n \n\n  \n    \n    \n   \n\nNon-deductible expenses (non-taxable income) net and tax-deductible costs not included in the accounting costs \n 8,521  \n 3,391  \n 2,081 \n\nEffect of different tax rates \n 1,304  \n (1,781) \n (874)\n\nEffect of “Approved, Beneficiary or Preferred Enterprise” status \n (1,403) \n \n-\n  \n \n-\n \n\nDeferred taxes on current losses (utilization of carry forward losses) and temporary differences for which a valuation allowance was provided, net \n 933  \n 691  \n (1,592)\n\nTaxes in respect of prior years \n (1,128) \n (942) \n 558 \n\nUncertain tax positions \n 914  \n \n-\n  \n \n-\n \n\nTax benefit for a depreciable asset recognized for tax purposes \n (1,497) \n \n-\n  \n \n-\n \n\nOther \n (854) \n \n875\n  \n \n1,013\n \n\n  \n    \n    \n   \n\nTaxes on income \n 40,459  \n \n38,773\n  \n$\n31,834\n \n\n \n\nj.Uncertain tax positions:\n\n \n\nA reconciliation\nof the beginning and ending amount of total unrecognized tax benefits in Formula’s subsidiaries is as follows:\n\n \n\nBalance as of January 1, 2024 \n$10,843 \n\nDecrease in tax positions \n (1,041)\n\nIncrease in tax positions \n 2,412 \n\nStatue limitation \n (2,522)\n\nBalance as of December 31, 2024 \n$9,692 \n\nDecrease in tax positions \n (981)\n\nIncrease in tax positions \n 4,160 \n\nStatue limitation \n (1,048)\n\nDeconsolidation \n (9,870)\n\nBalance as of December 31, 2025 \n 1,953 \n\n \n\nF-107\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n23:- TAXES ON INCOME (Cont.)\n\n \n\nAlthough the Group\nbelieves that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement, there is no assurance\nthat the final tax outcome of its tax audits will not be different from that which is reflected in the Group’s income tax provisions.\nSuch differences could have a material effect on the Group’s income tax provision, cash flow from operating activities and net\n\nincome in the period\nin which such determination is made.\n\n \n\nThe entire balance\nof unrecognized tax benefits, if recognized, would reduce the Group’s annual effective tax rate.\n\n \n\nNote 24:- Supplementary\nFinancial StatementS Information\n\n \n\na.Composition of non-controlling interest in material partially**-**owned\nsubsidiaries:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nMatrix and its subsidiaries \n$210,459  \n$182,340 \n\nSapiens and its subsidiaries \n \n-\n  \n 357,954 \n\nMagic Software and its subsidiaries \n 168,020  \n 167,286 \n\nOther \n 46,060  \n 2,427 \n\n  \n$424,539  \n$710,007 \n\n \n\nb.(1) Revenue by products and services was as follows:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nProprietary software and related services \n$208,694  \n$185,793  \n$178,844 \n\nOther products and third party \n 683,989  \n 534,869  \n 503,325 \n\nServices \n 1,734,441  \n 1,497,772  \n 1,428,278 \n\n  \n$2,627,124  \n$2,218,434  \n$2,110,447 \n\n \n\nb.(2) Revenue by timing of revenue recognition was as follows:\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nProducts and services transferred over time \n$\n2,277,643\n  \n$1,852,193  \n$1,749,466 \n\nProducts transferred at a point in time \n \n349,481\n  \n 366,241  \n 360,981 \n\n  \n$\n2,627,124\n  \n$2,218,434  \n$2,110,447 \n\n \n\nF-108\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote 24:- Supplementary\nFinancial StatementS Information (Cont.)\n\n \n\nc.Selling, marketing, general and administrative expenses:\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\nWages and related expenses \n$190,677  \n$163,870  \n$164,235 \n\nDepreciation and amortization \n 71,327  \n 47,503  \n 46,306 \n\nSubcontractors \n 9,752  \n 5,641  \n 8,073 \n\nAdvertising \n 8,651  \n 12,818  \n 13,888 \n\nMaintenance and other expenses \n 31,581  \n 19,884  \n 16,162 \n\nTotal Selling, marketing, general and administrative\nexpenses \n$311,988  \n$249,716  \n$248,664 \n\n \n\nd.The following table provides detailed breakdown of the Group’s\nfinancial income and expenses:\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\nFinancial expenses: \n   \n   \n  \n\nFinancial expenses related to liabilities in respect of business combinations \n$13,321  \n$356  \n$775 \n\nInterest expenses on loans and borrowings \n 18,670  \n 17,865  \n 18,540 \n\nFinancial costs related to Debentures \n 5,009  \n 3,552  \n 3,928 \n\nInterest expenses attributed to IFRS 16 \n 6,749  \n 4,851  \n 5,402 \n\nBank charges, negative foreign exchange differences and other financial expenses \n 19,838  \n 8,297  \n 7,002 \n\n  \n$63,587  \n$34,921  \n$35,647 \n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\nFinancial income: \n   \n   \n  \n\nInterest income from deposits, positive foreign exchange differences and other financial income \n$13,599  \n$10,454  \n$10,857 \n\n  \n    \n    \n   \n\nFinancial expenses, net \n$49,988  \n$24,467  \n$24,790 \n\n \n\nF-109\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote 24:- Supplementary\nFinancial StatementS Information (Cont.)\n\n \n\ne.Geographical information:\n\n \n\n1)The Group’s property, plant and equipment is located\nas follows:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nIsrael \n$45,772  \n$44,361 \n\nUnited States \n 828  \n 2,992 \n\nEurope \n 641  \n 924 \n\nJapan \n 126  \n 129 \n\nOther \n 247  \n 3,389 \n\n  \n    \n   \n\nTotal \n$47,614  \n$51,795 \n\n \n\n2)Revenues:\n\n \n\nThe Group’s\nrevenues classified by geographic area (based on the location of customers) are as follows:\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\nIsrael \n$2,092,849  \n$1,725,764  \n$1,578,696 \n\nInternational: \n    \n    \n   \n\nUnited States \n 435,800  \n 387,864  \n 435,184 \n\nEurope \n 83,866  \n 88,000  \n 81,580 \n\nJapan \n 11,920  \n 12,673  \n 10,847 \n\nOther (mainly Asia pacific) \n 2,689  \n \n4,133\n  \n \n4,140\n \n\nTotal \n$2,627,124  \n$2,218,434  \n$2,110,447 \n\n \n\nSee Note 2(13) regarding\nthe transaction prices allocated to performance obligation.\n\n \n\nF-110\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote 24:- Supplementary\nFinancial StatementS Information (Cont.)\n\n \n\nf.Earnings per share:\n\n \n\nThe following table\npresents the computation of basic and diluted net earnings per share for the Group:\n\n \n\n  \n\n**Year\nended December 31,**\n \n\n  \n2025  \n2024  \n2023 \n\n  \n   \n   \n  \n\nNet income attributable to Formula’s shareholders (basic): \n   \n   \n  \n\nFrom continued operations \n$36,514  \n$48,543  \n$35,739 \n\nFrom discontinued operations \n 569,965  \n 31,127  \n 28,275 \n\nNet income attributable to Formula’s shareholders (basic) \n$606,479  \n$79,670  \n$64,014 \n\n  \n    \n    \n   \n\nNet income attributable to Formula’s shareholders (Diluted): \n    \n    \n   \n\nFrom continued operations \n$36,316  \n$48,471  \n$35,672 \n\nFrom discontinued operations \n 569,866  \n 31,056  \n 28,206 \n\nNet income attributable to Formula’s shareholders (Diluted) \n 606,182  \n$79,527  \n$63,878 \n\n  \n    \n    \n   \n\nEarnings per share from continued operations (basic) \n$2.39  \n$3.18  \n$2.34 \n\nEarnings per share from discontinued operations (basic) \n 37.24  \n 2.04  \n 1.85 \n\nEarnings per share (basic) \n$39.63  \n$5.22  \n$4.19 \n\n  \n    \n    \n   \n\nEarnings per share from continued operations (diluted) \n$2.30  \n$3.10  \n$2.30 \n\nEarnings per share from discontinued operations (diluted) \n 36.09  \n 1.99  \n 1.82 \n\nEarnings per share (diluted) \n$38.39  \n$5.09  \n$4.12 \n\n  \n    \n    \n   \n\nNumber of shares used in computing: \n    \n    \n   \n\nEarnings per share (basic) \n 15,308,764  \n 15,304,610  \n 15,301,392 \n\nEarnings per share (diluted) \n 15,786,901  \n 15,636,664  \n 15,498,101 \n\n \n\nF-111\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n25:- operating segments\n\n \n\na.General:\n\n \n\nThe Group is engaged through nine directly-held subsidiaries—\nMatrix; Magic Software; Michpal; ZAP Group; Insync; Ofek; Shamrad; Hashahar; Formula Infrastructure— and one jointly controlled\nentity, TSG, in providing software services, proprietary and non-proprietary software solutions, software product marketing and support,\ncomputer infrastructure and integration solutions and training and integration.\n\n \n\n**Matrix**\n\n \n\nMatrix IT Ltd. is\nIsrael’s leading IT services company. Matrix provides software solutions and services, software development projects, outsourcing,\nintegration of software systems and services, project management services and comprehensive consulting and management services in complex\ninfrastructure projects, urban and environment planning – all in accordance with its customers’ specific needs. Matrix also\nprovides upgrading and expansion of existing software systems.\n\n \n\nMatrix operates through\nits directly and indirectly held subsidiaries in the following segments: (1) Information Technology (IT) Software solutions and services,\nConsulting & Management in Israel; (2) Information Technologies (IT) Software solutions and services in the U.S.; (3) Computer and\ncloud infrastructure and integration solutions; and (4) Software product marketing and support.\n\n* *\n\n*Information\nTechnologies (IT) and services, Consulting & Management in Israel:*\n\n \n\nThe software solutions\nand services in Israel provided by Matrix consist mainly of providing tailored software solutions and upgrading and expanding mainly existing\nlarge-scale software systems. These services include, among others, developing customized software, adapting software to the customer’s\nspecific needs, implementing software and modifying it based on the customer’s needs, outsourcing, software project management,\nsoftware testing and QA and integrating all or part of the above elements. Furthermore, the activity in this segment includes project\nmanagement consulting services and multi-disciplinary operational and engineering consulting services, including supervision of complex\nengineering projects, all according to client specific needs as the scope of work invested in each element varies from one customer to\nthe other. Starting from the financial statements for the year 2024, Matrix presents its training and implementation operations —\nwhich were previously reported as a separate operating segment and represented approximately 3.4% and 2.9% of Matrix’s total revenues\nand operating income, respectively, in 2023 — as part of the “IT Solutions, Consulting and Management Services in Israel”\nsegment. This change follows developments in the economic environment and, accordingly, changes in the business mix of the training and\nimplementation segment, such that the economic characteristics, nature of services, and types of customers are now similar to those of\nthe IT Solutions, Consulting and Management Services segment in Israel. In 2025, activity in software solutions and value-added services\nin Israel accounted for approximately 60% of Matrix’s revenues and approximately 53.8% of its operating income.\n\n \n\n*Information\nTechnologies (IT) and services in the United States:*\n\n \n\nMatrix’s activities in this segment are performed by two lines\nof business – Matrix US Holdings and Xtivia. The two line of business primarily provide software solutions and services of Governance\nRisk and Compliance (“GRC”) experts, including activities on the following topics: risk management, management and fraud prevention,\nanti-money laundering, trade surveillance as well as, specialized advisory services in the area of compliance with financial regulation\nand operational services, as well as solutions and specialized technological services in areas such as: portals, BI (Business Intelligence),\nDBA (Data Base Administration), CRM (Customer Relation Management) and EIM (Enterprise Information Management). Furthermore, the activity\nin this segment includes dedicated solutions for the GovCon Government contracting market, IT help desk services specializing in healthcare\nand software product distribution services particularly IBM, BMC and Atlassian products to customers in the public-government sector in\nthe U.S,. In 2025, the activity in the U.S. accounted for approximately 7.2% of Matrix’s revenues and approximately 12.8% of its\noperating income.\n\n \n\nF-112\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNote\n25:- operating segments (Cont.)\n\n \n\n*Computer\nand cloud infrastructure and integration solutions:*\n\n \n\nMatrix’s activities\nin this segment, is primarily providing computer solutions to computer and communications infrastructures, marketing and sale of computers\nand peripheral equipment to business customers, providing related services, and cloud computing solutions (through\nthe business specializing unit of the Company - Cloud Zone) and a myriad of services and products regarding office automation and printing\nsolutions, representation of global leading manufacturers of test and measurement equipment, communication and cyber and RF solutions,\nprojects and integration in the field of automation, calibration services in advanced technologies, provision of industrial video and\nimage processing solutions as well as Database services and Big data services (through the specialized business unit Data zone). In 2025,\nactivity in computer and cloud infrastructure and integration solutions accounted for approximately 25.8% of Matrix’s revenues and\nfor approximately 23.2% of its operating income.\n\n \n\n*Software\nproduct marketing and support:*\n\n \n\nMatrix’s activities\nin this segment include marketing, distributing and support for various software products, web world content management, database and\ndata warehouse mining, application integration, database and systems, data management and software development tools. In 2025, activity\nin software product marketing and support accounted for approximately 6.9% of Matrix’s revenues and approximately 10.2% of its operating\nincome.\n\n \n\n**Magic Software**\n\n \n\nMagic Software is\na global provider of: (i) software services and Information Technologies (“IT”) outsourcing software services; (ii) proprietary\napplication development and business process integration platforms; (iii) selected packaged vertical software solutions; as well as (iv)\ncloud based services for end to end digital transformation. Magic Software’s technology is used by customers to develop, deploy\nand integrate on-premise, mobile and cloud-based business applications quickly and cost effectively. In addition, Magic Software’s\ntechnology enables enterprises to accelerate the process of delivering business solutions that meet current and future needs and allow\ncustomers to dramatically improve their business performance and return on investment.\n\n \n\nWith respect to software\nservices and IT outsourcing services, Magic Software offers a vast portfolio of professional services in the areas of infrastructure design\nand delivery, application development, technology consulting planning and implementation services, integration projects, project management,\nsoftware testing and quality assurance, engineering consulting (including supervision of engineering projects), support services, cloud\ncomputing for deployment of highly available and massively-scalable applications and API’s and supplemental outsourcing services,\nall according to the specific needs of the customer, and in accordance with the professional expertise required in each case.\n\n \n\nF-113\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n25:- OPERATING SEGMENTS (Cont.)\n\n \n\nIn addition, Magic\nSoftware offers a variety of proprietary comprehensive packaged software solutions through certain of its subsidiaries for (i) enterprise-wide\nand fully integrated medical platform (“Clicks”), specializing in the design and management of patient-file oriented software\nsolutions for managed care and large-scale health care providers. This platform aims to allow providers to securely access an individual’s\nelectronic health record at the point of care, and it organizes and proactively delivers information with potentially real time feedback\nto meet the specific needs of physicians, nurses, laboratory technicians, pharmacists, front-and back-office professionals and consumers;\n(ii) enterprise management systems for both hubs and traditional air cargo ground handling operations from physical handling and cargo\ndocumentation through customs, seamless electronic data interchange, or EDI communications, dangerous goods, special handling, track and\ntrace, security to billing (“Hermes”); (iii) enterprise human capital management, or HCM, solutions, to facilitate the collection,\nanalysis and interpretation of quality data about people, their jobs and their performance, to enhance HCM decision making (“HR\nPulse”); (iv) revenue management and monetization solutions in mobile, wireline, broadband and mobile virtual network operator/enabler,\nor MVNO/E (“Leap”); (v) comprehensive systems for managing broadcast channels in the area of TV broadcast management through\ncloud-based on-demand service or on-premise solutions; (vi) comprehensive solution for sales and distribution field activities, such as\norder taking, route accounting, trade marketing, retail execution, proof of deliveries and B2B E-commerce (“Mobisale”); and\n(vii) comprehensive solution for efficient management of all types of rehabilitation centers (“Nativ”).\n\n \n\nMagic Software solutions\nare used by customers to develop, deploy and integrate on-premise, mobile and cloud-based business applications quickly and cost effectively.\nIn addition, its technology enables enterprises to accelerate the process of delivering business solutions that meet current and future\nneeds and allow customers to dramatically improve their business performance and return on investment. Its software solutions include\napplication platforms for developing and deploying specialized and high-end large-scale business applications (Magic xpa application platform,\nformerly branded uniPaaS, Appbuilder and Magic SmartUX), an integration platform that allows the integration and interoperability of diverse\nsolutions, applications and systems in a quick and efficient manner (Magic xpi business and process integration platform, formerly branded\niBOLT), Magic BusinessEye – a cloud-based platform for all verticals enabling smooth end-to-end digital transformation and full\norganizational business intelligence and FactoryEye - a proprietary high performance, low-code, flexible, hybrid platform for manufacturers\nbased on existing infrastructure enabling real-time virtualizations of all production data and advanced analytics (based on machine learning)\nfor improved productivity and competitive advantage. These solutions enable Magic Software customers to improve their business performance\nand return on investment by supporting the affordable and rapid delivery and integration of business applications, systems and databases.\n\n** **\n\nMagic Software products\nand services are available through a global network of regional offices, independent software vendors, system integrators, distributors\nand value-added resellers as well as original equipment manufacturers and consulting partners in approximately 50 countries.\n\n \n\nF-114\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n25:- OPERATING SEGMENTS (Cont.)\n\n** **\n\n**Insync**\n\n** **\n\nInsync is a U.S. based\nnational supplier of employees to Vendor Management Systems (VMS) Workforce Management Program accounts. Insync specializes in providing\nprofessionals in the following areas; Accounting and Finance, Administrative, Customer Service, Clinical, Scientific and Healthcare, Engineering,\nManufacturing and Operations, Human Resources, IT Technology, LI/MFG, and Marketing and Sales. Insync currently supports more than 30\nVMS program customers with employees in over 40 states.\n\n** **\n\n**Michpal**\n\n \n\nMichpal, an Israeli registered company, is a developer of proprietary,\non-premise payroll software solution for processing traditional payroll stubs to Israeli enterprises and payroll service providers. Michpal\nalso developed several complementary modules such as attendance reporting, which are sold to its customers for additional fees. Together\nwith its subsidiaries Unique Software Industries Ltd, a software development and services company, providing integrated solutions in the\nfield of payroll for more than 30 years, including pay-stubs, pension services management, education funds management, and software solutions\nfor managing employee attendance, and together with Effective Solutions Ltd, Michpal also provides consulting services in the fields of\noperational cost savings and procurement, as well as salary control and monitoring a payroll, labor, pensions, social security and employee\nincome tax matters.\n\n** **\n\n**ZAP Group**\n\n** **\n\nZAP Group, is Israel’s\nlargest group of consumer websites which manages more than twenty leading consumer websites from diverse content worlds with a total of\nmore than 17 million visits per month, including Zap Price Comparison website, Zap Yellow Pages (the largest business index in Israel)\nand Zap Rest (Israel’s restaurants index). ZAP Group, an Israeli private company, provides a variety of digital advertising solutions\nfor its customers (small and medium businesses in Israel) and an access to an E-commerce platform to allow them engage with their consumers.\nZAP Group serves over 400,000 listed businesses on its platforms; approximately 16,000 of them are paying customers. The websites managed\nand offered by ZAP Group offer consumers a user-friendly search experience with a variety of advanced tools, which enable them to make\neducated purchase decisions in the best and most informed way.\n\n** **\n\n*Digital Solutions*\n\n \n\nZAP Group provides\na variety of digital advertising solutions for its customers (small and medium businesses in Israel) and an access to an E-commerce platform\nthat allows them to engage with their consumers. ZAP Group regularly seeks to develop attractive digital solutions, which it believes\nto have market potential for small and medium businesses and their end user. All of ZAP Group’s investments in this area have been\nproven, where we believe we can leverage our experience to enhance product positioning and increase market penetration. We provide our\nmanagement and technical and financial expertise, marketing experience to help bring these products to market.\n\n \n\nF-115\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n25:- OPERATING SEGMENTS (Cont.)\n\n** **\n\n*E-commerce Solutions*\n\n \n\nZAP Group provides\nan e-commerce platform for approximately 1,500 large, medium and small businesses, which operate stores in Israel. The platform, both\nwebsite and application, allow end users to compare prices of the various stores for over 1.2 million products in 650 categories. The\nplatform provides to more than 120 million visiting end users annually, 300,000 reviews of stores and products and 5,000 quality guides\n(videos and articles), which allow them to engage through the platform directly with the stores for a purchase of a certain product they\nlooked at through the platform. Total online purchases through the platform is estimated at approximately NIS 2 billion annually, which\nis estimated at 14% out of total online purchase volume in Israel (not including food and beverage).\n\n \n\nIn 2021, ZAP Group\nlaunched a new website for car sellers and buyers, which provides a marketplace where buyers can explore on one website various options\nfor buying a second-hand car (B2C). The platform allows the buyer to compare prices, specs, financing, peripheral services, accessories\nand overall packages. The Online, real-time supply availability enables transparency, and also provides the buyer an aggregated view of\nspecific sellers and agencies and a direct contact with a large pool of sellers\n\n \n\n*Digital platforms*\n\n* *\n\nZAP Group provides\ndigital advertising platforms and services through 18 websites for medium and small businesses in 1,600 business categories in Israel,\nincluding doctors, lawyers, and other service and product providers. The platform, both website and application allow end users to contact\ndirectly with the service provider. The platform provides to more than 50 million visiting end users annually, 200,000 reviews, 2,000\nquality guides (videos and articles), 300 price lists, and 700 forums with more than 1.5 million expert explanations.\n\nZAP Group also provides\nits customers other digital services as Search Engine Marketing (Pay Per Click Google and Facebook campaigns) and Search Engine Optimization\nfor their websites. ZAP Group also provides website design services, creation of new websites on various tools (ZAP-X), management of\nsocial media, online business cards (GMB), and big data services.\n\n \n\n*Restaurants and\nevents*\n\n* *\n\nZAP Group provides\ndigital advertising platforms and services for more than 17,000 restaurants listed and provides services for social events. Approximately\n2,500 of them are paying customers. The platform, both website and application allow end users to directly contact the restaurant for\ntable ordering, ordering of delivery or take away, to post visit reviews or explore the restaurant menu, photo gallery and other content\nsuch as articles, etc. The platform provides to more than 30 million visiting end users annually, approximately two million food deliveries,\n200,000 reviews, 5,000 food and culinary articles (videos and articles), and more than 0.5 million push updates annually.\n\n* *\n\n*Other*\n\n \n\nZAP Group provides\ndigital advertising platform for domestic travel and hospitality businesses in Israel (the “Platform”). The platform, both\nwebsite and application, allows end users to order directly from the provider (hotel, guesthouse or attraction service provider). The\nplatform provides access to millions of visiting end users annually, to approximately 1,200 vacation and leisure locations.\n\n \n\nF-116\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE\n25:- OPERATING SEGMENTS (Cont.)\n\n \n\n**Ofek**\n\n \n\nFounded in 1987, Ofek\nis one of the leading companies in Israel in the fields of aerial and satellite mapping, geographic data collection and processing, and\nprovider of services in numerous geographic applications. Among Ofek’s customers are many government authorities and foreign government.\nOfek employs approximately 100 employees, all situated at Ofek’s headquarter in Natanya, Israel, in multiple areas of expertise:\ngeodetic engineers, software experts, geographers and aerial photo interpreters, GIS and surveying engineers, 3D mapping and data processing\nexperts. The company owns three aerial photography aircrafts equipped with state-of-the-art mapping sensors. Ofek operates worldwide.\nIt has successfully completed projects for various clients (government and private) in Asia, America, Europe, Middle East and Africa,\nand it constantly involved in ongoing international geographic projects. Ofek aerial photography has accumulated experience in managing\nand executing NSDI and GIS projects and surveys for detecting, collecting and analyzing diverse geographic cadastral and environmental\ninformation.\n\n \n\n**TSG**\n\n \n\nTSG is a global high**-**technology\ncompany engaged in high-end technical solutions for protecting the safety of national borders, improving data gathering mechanisms, and\nenhancing communications channels for military, homeland security and civilian organizations.\n\n \n\nTSG operates primarily\nin the defense and homeland security arenas. The nature of military and homeland security actions in recent years, including low intensity\nconflicts and ongoing terrorist activities, as well as budgetary pressures to focus on leaner but more technically advanced forces, have\ncaused a shift in the defense and homeland security priorities for many of TSG’s major customers. As a result, TSG believes there\nis a continued demand in the areas of command, control, communications, computer and intelligence (C4I) systems, intelligence, surveillance\nand reconnaissance (ISR) systems, intelligence gathering systems, border and perimeter security systems and cyber-defense systems. There\nis also a continuing demand for cost-effective logistic support and training and simulation services. TSG believes that its synergistic\napproach of finding solutions that combine elements of its various activities positions it to meet evolving customer requirements in many\nof these areas. TSG tailors and adapts its technologies, integration skills, market knowledge and operationally-proven systems to each\ncustomer’s individual requirements in both existing and new platforms. By upgrading existing platforms with advanced technologies,\nTSG provides customers with cost-effective solutions, and its customers are able to improve their technological and operational capabilities\nwithin limited budgets.\n\n \n\nTSG markets its systems\nand products either as a prime contractor or as a subcontractor to various governments and defense and homeland security contractors worldwide.\nIn Israel, TSG sells its defense, intelligence and homeland security systems and products mainly to the IMOD, which procures all equipment\nfor the Israeli Defense Force (IDF).\n\n \n\nF-117\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n** **\n\nNOTE 25:- OPERATING SEGMENTS (Cont.)\n\n** **\n\n**Shamrad**\n\n \n\nShamrad is an Israeli\nprivate company, engaged in the supply, integration and installation of computer communication infrastructures, announcement and alarm\nsystems and electronic security systems. Shamrad represents several companies in the field of security: ATI systems – sirens, Garrett\n– Metal detectors, Kopp – Ferro Magnetic detectors for MRI rooms. Shamrad holds vast experience in design, supply and installation\nof security systems, integrated with command and control solutions, CCTV, access control and intruder detection. Shamrad provides video\nsolutions together with high speed networks and wireless links, allowing hundreds of camera channels to be viewed in one or many control\ncenters. Shamrad installs IP and analog cameras in various configurations such as, Bullet, Dome, PTZ, Box, and Thermal. Shamrad offers\ncustomers complete solutions for communications and telephony infrastructure, both in the fields of passive and active equipment. Amongst\nthe services offered are installation and maintenance of networks (local and wireless) and specific dedicated communications rooms. Shamrad\nhas, since it’s inception, a dedicated department offering a complete and professional solution, with a system wide view tailored\nto exactly meet their customers’ requirements.\n\n \n\n**Hashahar**\n\n** **\n\nHashahar Telecom &\nElectricity Ltd., an Israeli privately held company established in 2018, is a leading provider of telecommunications infrastructure and\nelectrical services. The company specializes in the planning, deployment, and installation of fiber optics, structured cabling (CAT 6/7),\ncoaxial and telephony systems for both enterprise and residential sectors, including intercity infrastructure and public sector projects.\nHashahar delivers end-to-end project execution through in-house engineering, dedicated project managers, and stringent safety and data\nsecurity protocols. Its clients include Bezeq, HOT, Cellcom, YES, Israel Railways, and multiple government bodies. With VPN-enabled IT\ninfrastructure, automated triple-backup systems, and Priority ERP for operational oversight, the company maintains a high standard of\nexecution in complex fiber deployment and communication infrastructure projects.\n\n \n\nb)Consolidated Goodwill in material partially owned subsidiaries:\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nMatrix and its subsidiaries \n$321,264  \n$294,282 \n\nSapiens and its subsidiaries \n \n-\n  \n 396,919 \n\nMagic Software and its subsidiaries \n 189,798  \n 172,515 \n\nMichpal and its subsidiaries \n 86,174  \n 70,636 \n\nZAP Group and its subsidiaries \n 36,596  \n 32,009 \n\nOther consolidated subsidiaries \n 12,411  \n 8,719 \n\n  \n$646,243  \n$975,080 \n\n \n\nF-118\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n** **\n\nNOTE 25:- OPERATING SEGMENTS (Cont.)\n\n \n\nc)Reporting on operating segments:\n\n \n\nThe operating segments\nare identified on the basis of information that is reviewed by the chief operating decision maker (“CODM”) to make decisions\nabout resources to be allocated and assesses its performance. The CODM has been identified as Formula’s CEO. The CODM assess the\nperformance of the Group based on each of the Group’s directly held subsidiaries and company accounted for at equity operating income\n(or loss). Headquarters and finance expenses of Formula are allocated proportionally among the Investees.\n\n \n\n  \nMatrix  \nMagic Software  \nMichpal  \nZAP Group  \nOther  \nAdjustments  \nTotal \n\n  \n   \n   \n   \n   \n   \n   \n  \n\nYear ended December 31, 2025: \n   \n   \n   \n   \n   \n   \n  \n\nRevenues from external customers \n 1,810,605  \n 625,438  \n 57,650  \n 38,429  \n 220,489  \n (125,487) \n 2,627,124 \n\nInter-segment revenues \n 2,934  \n 858  \n (8) \n \n-\n  \n 260  \n (4,044) \n \n-\n \n\nTotal revenues \n 1,813,539  \n 626,296  \n 57,642  \n 38,429  \n 220,749  \n (129,531) \n 2,627,124 \n\nDepreciation and amortization \n 57,678  \n 21,297  \n 11,177  \n 27,878  \n 10,429  \n (7,795) \n 120,664 \n\nSegment operating income \n 151,791  \n 59,997  \n 9,381  \n (24,248) \n 15,983  \n (10,379) \n 202,525 \n\nUnallocated corporate expenses \n    \n    \n    \n    \n    \n    \n (6,148)\n\nTotal operating income \n    \n    \n    \n    \n    \n    \n 196,377 \n\nFinancial expenses, net \n    \n    \n    \n    \n    \n    \n (49,988)\n\nGroup’s share of profits of companies accounted for at equity, net \n    \n    \n    \n    \n    \n    \n 3,654 \n\nTaxes on income \n    \n    \n    \n    \n    \n    \n (40,459)\n\nNet income from continued operations \n    \n    \n    \n    \n    \n    \n 109,584 \n\nNet income from discontinued operations \n    \n    \n    \n    \n    \n    \n 559,480 \n\nNet income \n    \n    \n    \n    \n    \n    \n 669,064 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\n \n\nF-119\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n** **\n\nNOTE 25:- OPERATING SEGMENTS (Cont.) \n\n \n\n  \nMatrix  \nMagic Software  \nMichpal  \nZAP Group  \nOther  \nAdjustments  \nTotal \n\n  \n   \n   \n   \n   \n   \n   \n  \n\nYear ended December 31, 2024: \n   \n   \n   \n   \n   \n   \n  \n\nRevenues from external customers \n$1,500,863  \n$549,992  \n$42,960  \n$38,068  \n$170,315  \n$(83,764) \n$2,218,434 \n\nInter-segment revenues \n 7,597  \n 2,528  \n 21  \n \n-\n  \n 102  \n (10,248) \n \n-\n \n\nTotal revenues \n$1,508,460  \n$552,520  \n$42,981  \n$38,068  \n$170,417  \n$(94,012) \n$2,218,434 \n\nDepreciation and amortization \n$50,496  \n$20,763  \n$6,843  \n$9,224  \n$8,240  \n$(5,894) \n$89,672 \n\nSegment operating income \n$121,665  \n$61,237  \n$8,723  \n$(4,939) \n$11,449  \n$(6,490) \n$191,645 \n\nUnallocated corporate expenses \n    \n    \n    \n    \n    \n    \n (8,313)\n\nTotal operating income \n    \n    \n    \n    \n    \n    \n$183,332 \n\nFinancial expenses, net \n    \n    \n    \n    \n    \n    \n (24,467)\n\nGroup’s share of profits of companies accounted for at equity, net \n    \n    \n    \n    \n    \n    \n 2,077 \n\nTaxes on income \n    \n    \n    \n    \n    \n    \n (38,773)\n\nNet income from continued operations \n    \n    \n    \n    \n    \n    \n 122,169 \n\nNet income from discontinued operations \n    \n    \n    \n    \n    \n    \n 71,621 \n\nNet income \n    \n    \n    \n    \n    \n    \n$193,790 \n\n \n\n  \nMatrix  \nMagic Software  \nMichpal  \nZAP Group  \nOther  \nAdjustments  \nTotal \n\n  \n   \n   \n   \n   \n   \n   \n  \n\nYear ended December 31, 2023: \n   \n   \n   \n   \n   \n   \n  \n\nRevenues from external customers \n$1,416,283  \n$531,415  \n$36,912  \n$45,286  \n$156,662  \n$(76,111) \n$2,110,447 \n\nInter-segment revenues \n 3,579  \n 3,637  \n \n-\n  \n \n-\n  \n 525  \n (7,741) \n \n-\n \n\nTotal revenues \n$1,419,862  \n$535,052  \n$36,912  \n$45,286  \n$157,187  \n$(83,852) \n$2,110,447 \n\nDepreciation and amortization \n$55,230  \n$20,553  \n$4,801  \n$8,090  \n$7,950  \n$(5,582) \n$91,042 \n\nSegment operating income \n$106,831  \n$57,108  \n$6,366  \n$(3,126) \n$9,492  \n$(8,149) \n$168,522 \n\nUnallocated corporate expenses \n    \n    \n    \n    \n    \n    \n (10,478)\n\nTotal operating income \n    \n    \n    \n    \n    \n    \n$158,044 \n\nFinancial expenses, net \n    \n    \n    \n    \n    \n    \n (24,790)\n\nGroup’s share of profits of companies accounted for at equity, net \n    \n    \n    \n    \n    \n    \n 773 \n\nTaxes on income \n    \n    \n    \n    \n    \n    \n (31,834)\n\nNet income from continued operations \n    \n    \n    \n    \n    \n    \n 102,193 \n\nNet income from discontinued operations \n    \n    \n    \n    \n    \n    \n 63,539 \n\nNet income \n    \n    \n    \n    \n    \n    \n$165,732 \n\n \n\nF-120\n\n \n\n \n\n**FORMULA SYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S. dollars in thousands, except share and per share data**\n\n** **\n\nNOTE 26:- SUBSEQUENT EVENTS\n\n \n\n1.On\nFebruary 24, 2026, Matrix IT Ltd. and Magic Software Enterprises Ltd., both subsidiaries of the Company, announced the completion of\ntheir merger agreement. The transaction, which was effected through a reverse triangular merger, resulted in Matrix acquiring all of\nthe issued and outstanding share capital of Magic Software in consideration for the allotment of 28,861,564 ordinary shares of Matrix\nto Magic Software’s shareholders (approximately 0.588 Matrix ordinary shares for each Magic Software ordinary share). Following\ncompletion of the merger, Magic Software became a wholly owned (100%) subsidiary of Matrix, its shares were delisted from trading on\nNasdaq and the Tel Aviv Stock Exchange, and it ceased to be a public company.\n\n \n\nIn\nconnection with the merger process, on February 4, 2026, Matrix completed an issuance of convertible debentures (Series 2) with a par\nvalue of approximately NIS 297 million , for gross proceeds of approximately NIS 300.6 million. The debentures bear a fixed annual interest\nrate of 0.5%, are not linked to any index, and are repayable in a single installment on February 1, 2031. The debentures are convertible,\nfrom the date of their listing for trading until January 22, 2031, into ordinary shares of Matrix at a conversion ratio of NIS 180 par\nvalue per one ordinary share, subject to customary adjustments. Interest is payable semi-annually commencing August 1, 2026, through the\nmaturity date.\n\n \n\nThe\nproceeds from the issuance were used, among other things, to finance the repayment of loans and accrued interest related to Magic Software’s\nbank credit facilities in the amount of approximately NIS 189.2 million, which were repaid upon completion of the merger. Loans in the\namount of approximately NIS 38.2 million remained outstanding.\n\n \n\n2.Effective\nJanuary 1, 2026, subsequent to the reporting period, the Company changed its functional currency from NIS to U.S. dollars, following\na change in the primary economic environment in which the Company operates. Management assessed the relevant primary and secondary indicators\nin accordance with IAS 21 and determined that the U.S. dollar has become the currency that most faithfully represents the economic effects\nof the underlying transactions, events and conditions, primarily reflected in the currency in which the Company holds and manages its\nmonetary assets and conducts its financing activities. The change in functional currency is accounted for prospectively from the date\nof the change and, therefore, did not affect the Company’s financial statements for the year ended December 31, 2025. Since the\nCompany’s presentation currency is already the U.S. dollar, no change was made to the presentation currency.\n\n \n\n3.On March 15, 2026, based on the results of the\nFourth quarter ending December 31, 2025, Matrix’s board of directors approved the distribution of a cash dividend of NIS 0.79 per\ncommon share (approximately $0.25 per common share) for a total amount of approximately NIS 73,094 thousand (approximately $23,227) .\nThe total cash dividend distribution was paid on May 5, 2026.\n\n \n\n4.On March 23, 2026, based on the results of the\nFourth quarter ending December 31, 2025, Michpal’s board of directors approved the distribution of a cash dividend of NIS 0.31 per\ncommon share (approximately $0.01 per common share) for a total amount of approximately NIS 5,429 thousand (approximately $1,745) . The\ntotal cash dividend distribution was paid on April 14, 2026.\n\n \n\n5.On January 13, 2026, the Board of Directors of\nTSG approved a capital raising through a private placement to several investors in the amount of approximately NIS 192,000 thousand (approximately\n$60,900), as well as an additional capital raise of approximately NIS 92,000 thousand (approximately $29,197), subject to the exercise\nof options granted to investors in the same financing round. As a result of the private placement, our direct ownership interest in TSG\nSystems was diluted to 33.38, and was further diluted to 32.87% as a result of subsequent exercises of options by TSG Systems employees.\n\n \n\nF-121\n\n \n\n \n\n**FORMULA\nSYSTEMS (1985) LTD.**\n\n** **\n\n**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**U.S.\ndollars in thousands, except share and per share data**\n\n** **\n\nNOTE 26:- SUBSEQUENT EVENTS (Cont.)\n\n** **\n\n6.On March 26, 2026, in light of Formula’s results for the fiscal year ended December 31, 2025, and in particular the completion of the acquisition of Sapiens by Advent in December 2025, Formula’s board of directors announced its intention to declare a special cash dividend to Formula’s shareholders in an aggregate amount of up to $200 million, following the filing of Formula’s Annual Report on Form 20-F for the fiscal year ended December 31, 2025, which is expected by mid-May 2026. The actual declaration of such dividend, including the determination of the record date and payment date, remains subject to the board’s final approval and satisfaction of the conditions for dividend distribution under Israeli law.\n\n \n\n7.On February 1, 2026, the Company, through its\nsubsidiary Formula Infrastructure Ltd., completed the acquisition of two subsidiaries engaged in infrastructure services and engineering\nactivities for total consideration of approximately NIS 95 million (approximately $ 30,744). The acquisitions include controlling interests\nof approximately 73% of the issued and outstanding share capital of M.L.B.S. Technologies Ltd, an Israel-based, provider of infrastructure\nservices specializing in subsurface utility projects for telecommunications, transportation and municipal sectors and approximately 70%\nof the issued and outstanding share capital of David Barhom Engineers & Consultants Ltd, an Israeli-based engineering and consulting\nfirm specializing in the planning and design of electrical, communications and control systems for infrastructure projects. The agreements\ninclude customary provisions, including earn-out adjustments and call and put option mechanisms linked to future financial performance.\n\n \n\n8.On January 19, 2026, the Company paid approximately\nNIS 371.1 million (approximately $ 117,454) in taxes relating to the sale of shares of Sapiens International Corporation N.V., which were\nclassified as part of a disposal group held for sale and discontinued operations, as further described in Note 13 to the financial statements\n– Disposal Group Held for Sale and Discontinued Operations.\n\n** **\n\n9.In November 2025, Michpal entered into an agreement to acquire 60% of the share capital of JTG Human Resources Consulting Ltd., which together with its subsidiaries constitutes the Zviran Group, which provides advice and salary data, pension advice and benefits to employers, as well as human resources processes, for cash consideration of NIS 48 million (approximately $ 14,837), of which NIS 9.0 million (approximately $ 2,782), as well as additional consideration of up to NIS 8.4 million (approximately $ 2,597), are contingent on the results of the Zviran Group’s operations in the years 2026-2028. As of the reporting date, the conditions precedent for completion of the transaction had not yet been fulfilled and, therefore, the transaction had not been completed. Accordingly, no assets or liabilities in respect of the aforementioned transaction were recognized in the financial statements.\n\n \n\n- - - - - - - - - - - - - - - - - - -\n\n \n\nF-122\n\n \n\n \n\n**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING\nFIRM**\n\n \n\nTo the Board of Directors and Shareholders of\n\nMagic Software Japan K. K.\n\n \n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited the accompanying\nstatements of financial position of Magic Software Japan K.K. (the “Company”) as of December 31, 2023, and the related statements\nof profit or loss, comprehensive income, changes in equity, and cash flows and for each of the two years in the period ended December\n31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements\npresent fairly, in all material respects, the financial position of the Company at December 31, 2023, and the results of its operations\nand its cash flows for each of the two years in the period ended December 31, 2023 in conformity with International Financial Reporting\nStandards as issued by the International Accounting Standards Board.\n\n \n\n**Basis for Opinion**\n\n \n\nThese financial statements\nare the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based\non our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company\nin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission\nand the PCAOB.\n\n \n\nWe conducted our audits in\naccordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance\nabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing\nprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures\nthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the\nfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,\nas well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for\nour opinion.\n\n \n\nTokyo, Japan\n\nMay 13, 2024\n/s/ KDA Audit Corporation\n\n \nKDA Audit 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