{"url_path":"/sec/forty/10-k/2026/item-8","section_key":"item-8","section_title":"Item 8 FINANCIAL INFORMATION**","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":4733,"has_tables":true,"body_markdown":"**ITEM 8. FINANCIAL INFORMATION**\n\n \n\n**A.**\n**Consolidated Statements and Other Financial Information**\n\n \n\n**Financial Statements**\n\n \n\nOur consolidated financial\nstatements and other financial information are incorporated herein by reference to “*Item 18. Financial Statements*”\nbelow.\n\n \n\n**Export Sales**\n\n \n\nIn 2025, 20.3% of our revenues\noriginated from customers located outside of Israel. For information on our revenues breakdown by geographic market for the past three\nyears, see “*Item 4. Information on the Company— Business Overview— Geographical Distribution of Revenues*.”\n\n \n\n**Legal Proceedings**\n\n \n\nFrom time to time, we are\nsubject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including\nclaims with respect to intellectual property, contracts, employment and other matters. In Accordance with IFRS, we accrue a liability\nwhen it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment\nis required in the determination of both the probability and as to whether a loss is reasonably estimable. These accruals are reviewed\nat least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information\nand events pertaining to a particular matter. We intend to vigorously defend ourselves against the above claims, and we generally intend\nto vigorously defend any other legal claims to which we are subject. While for most litigation, the outcome is difficult to determine,\nto the extent that there is a reasonable possibility that the losses to which we may be subject could exceed the amounts (if any) that\nit has already accrued, we attempt to estimate such additional loss, if reasonably possible, and disclose it (or, if it is an immaterial\namount, indicate accordingly). The aggregate provision that we have recorded for all other legal proceedings (other than the particular\nmaterial proceedings described below) is not material. Furthermore, in respect of our ordinary course legal, administrative and regulatory\nproceedings (i.e., other than the particular material proceeding described below), we estimate, in accordance with the procedures described\nabove, that as of the current time there is no reasonable possibility that we will incur material losses exceeding the non-material amounts\nalready recognized.\n\n* *\n\n151\n\n \n\n* *\n\n*Legal Proceedings Related to Formula’s\nCEO’s RSU Grant*\n\n \n\nOn November 23, 2020, Olir\nTrade 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 our Report of Foreign Private Issuer on Form 6-K furnished to the SEC on December 9,\n2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim, on our behalf, against each of our five\ndirectors, as well as our chief executive officer, Mr. Guy Bernstein, and chief financial officer, Mr. Asaf Berenstin, as defendants.\nWe and the named defendants are all listed as respondents to the Motion to Certify. The Claim challenges the legality, under the Companies\nLaw, of compensation awarded to our chief executive officer and chief financial officer, including past engagements with our chief executive\nofficer and the re-approval by our compensation committee and board of directors in November 2020 (as reported in our Report of Foreign\nPrivate Issuer on Form 6-K furnished to the SEC on November 4, 2020), of the eight-year equity-based award of compensation-in the form\nof 611,771 restricted share units- to our chief executive officer. The Claim includes allegations of breaches of fiduciary duties (duty\nof care and duty of loyalty) and the oppression of minority shareholders and unjust enrichment. The Claim seeks an accounting from the\ndefendants as to the alleged harm caused to Formula Systems, as well as compensation to Formula Systems for such harm. The Claim also\nseeks a declaratory order preventing the board of directors from using voting powers allegedly granted to it under agreements related\nto our ADSs. We reject all claims made by Olir and believe that all actions taken by our board of directors and our committees were taken\nin accordance with the Companies Law, for Formula’s benefit, and based upon advice of legal counsel. All respondents intend to vigorously\ndefend against the Motion to Certify, and on May 13, 2021, all respondents filed their responses to the Motion to Certify.\n\n \n\nOn January 24, 2023, we submitted\na request for dismissal in limine of the motion to certify due to a change in the factual grounds of the motion including, among other\nthings, the reapproval of the compensation given to our chief executive officer by a new and independent board of directors made on January\n15, 2023. The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations hearing was\nheld on January 31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the request for\ndismissal in which they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On April 13, 2023,\nwe submitted our response to Olir’s response. Olir filed its briefs by September 18, 2023. On December 3, 2023, we filed a motion\nto render a decision in the motion to dismiss *in limine*. On December 5, 2023, the court granted our motion to dismiss *in limine*,\nand ordered us to pay Olir’s costs in an amount of NIS 45,000. On January 25, 2024, Olir filed an appeal against the District Court’s\ndecision with the Israeli Supreme Court. Olir failed to attach to its appeal the pleadings regarding the motion to dismiss. On March 26,\n2024, all respondents notified the Supreme Court that they believe that Olir acted in bad faith and contrary to the rule of law when it\ndid not attach essential documents to the notice of appeal and drafted a misleading notice of appeal. The respondents argued that those\nactions had real implications on the pre-appeal hearing, as the court lacked the respondents’ position and claims. Therefore, the\nrespondents requested that their position be heard at a bench hearing of the court. On October 22, 2025, all the respondents filed their\nresponse to the appeal. A bench hearing is now scheduled for July 15, 2026. At this stage of the proceedings, we believe that the chances\nfor the approval of Olir’s Motion to Certify are low.\n\n \n\n*Legal Proceedings related to Matrix*\n\n* *\n\nOn December 3, 2023, our subsidiary\nMatrix received a request for disclosure of materials pursuant to Section 198a of the Companies Law, which was submitted to the District\nCourt (Economic Division) of Tel Aviv-Jaffa by an individual who claimed to be a shareholder of Matrix. The request related to a potential\nderivative claim that could be filed by the individual, on Matrix’s behalf, against Matrix’s chief executive officer and each\nof its directors related to the procedure for the approval of compensation awarded to Matrix’s chief executive officer following\nthe rejection of such compensation by Matrix’s general meeting of shareholders and the re-approval of that compensation by Matrix’s\ncompensation committee and board of directors, respectively, acting in accordance with the Companies Law. On April 18, 2024, Matrix filed\na response to the disclosure request in which Matrix requested that the court deny, on various grounds, the request made by the potential\nplaintiff. An inquest was held on the disclosure motion on February 2, 2025. At this stage of this legal proceeding we cannot predict\nits outcome.\n\n* *\n\n152\n\n \n\n* *\n\n*Legal Proceedings related to Zap Group*\n\n* *\n\nOn December 24, 2019, a motion\nfor the approval of a class action (#60508-02-20), in an amount of NIS 793.8 million (approximately $217.7 million), was filed against\nZap Group with the Israeli district court (central district), claiming that Zap Group had allegedly generated income illegally from paying\ncustomers through the ‘ZAP’s price comparison’ website. At the pre-trial hearing, it was decided that the plaintiffs\nwould file an explanation to the court as to why they believed they were fit to serve as class action plaintiffs and why they had performed\nprohibited clicks on their competitor’s websites through Zap Group’s website. In addition, the plaintiffs were requested to\nupdate whether they were willing to reduce the amount of the claim. On July 15, 2021, the plaintiffs filed a motion to reduce the amount\nof the claim to NIS 63 million (approximately $17.3 million). On December 15, 2021, a pre-trial hearing took place, in which the court\nclarified that it does not intend to interfere with Zap Group’s business considerations regarding the click filtering mechanisms\nthat it operates. The court recommended that the plaintiffs reach an agreed solution with Zap Group on the issue of the necessary disclosure\nthat Zap Group should include in its contracts with customers (as available on its website). The parties were requested to file a joint\nnotice in accordance with the court’s recommendation by January 15, 2022. The plaintiffs submitted a request for an extension to\nfile the notice. On April 5, 2022, the plaintiffs filed a notice with the court stating that they had not reached agreements with Zap\nGroup and therefore seek to set the case for evidentiary hearing. On December 12, 2022 the parties filed a joint notice with the court\nstating their agreement to initiate a mediation process. A mediation meeting took place on February 6, 2023. The mediation ended without\nthe parties reaching an agreement. As a result, evidentiary hearings were held between March 6, 2024, and July 10, 2024, during which\nexpert and fact witnesses from both sides were examined. Subsequently, deadlines were set for the submission of the parties’ summations.\nOn August 8, 2024, the parties informed the court that they had reached an agreement to refer the matter to a mediation process to be\npresided upon by another judge of the same court. Accordingly, mediation sessions took place on December 11, 2024 and January 21, 2025\nin front of Judge Rami Haymovitz. On March 3, 2025, the plaintiffs’ counsel informed the court that there had been disagreements\nbetween the defendants and their counsel over the course of the mediation, and requested that the court determine as to whether they could\ncontinue to represent the plaintiffs in the case. On March 24, 2025, as a result of a hearing, the court requested that the plaintiffs’\ncounsel and Zap Group propose terms for a settlement of the litigation on or before June 4, 2025 that the plaintiffs could review and\ndetermine whether to accept. On May 20, 2025, the plaintiffs filed a motion with the court seeking to replace their legal representation\nand to dismiss their current class counsel, citing a breakdown in trust and lack of adequate representation. In addition, the plaintiffs\nrequested that the court suspend any judicial decision in connection with the proposed settlement arrangement until such replacement of\ncounsel is completed. On May 22 and May 26, 2025, responses opposing the plaintiffs’ motion were filed by the existing class counsel\n(whom the plaintiffs sought to replace) and by Zap Group. On June 9, 2025, the court issued a decision determining that the process relating\nto the settlement arrangement would continue. The court further instructed the parties to submit a settlement agreement by July 8, 2025,\nand indicated that only following its submittal it would determine how to proceed, including how to address the plaintiffs’ request\nto replace their representation and the continued management of the case. On July 22, 2025, the court held a hearing and determined that\nthe plaintiffs’ arguments would be heard only after the submission of responses to the motion for approval of the class action.\nOn August 5, 2025, Zap and the existing class counsel filed a motion for approval of a proposed settlement arrangement. The court instructed\nthat the motion be forwarded to the Israeli Attorney General for review and that the plaintiffs be permitted to submit their responses\nwithin the prescribed timeframe. On November 16, 2025, the court issued a decision instructing the publication of a notice regarding the\nproposed settlement arrangement and declined to dismiss it outright at that stage. The court further determined that the position of the\nIsraeli Attorney General, as well as any objections submitted by the plaintiffs, would be considered prior to any final decision regarding\napproval of the settlement arrangement. Following the publication of the proposed settlement arrangement in accordance with the court’s\ninstructions, including publication in newspapers and on Zap Group’s websites, the position of the Attorney General was expected\nto be submitted by March 8, 2026. However, due to the situation in Israel, such position had not yet been submitted as of that date. As\nthis claim was filed against Zap Group prior to its acquisition by Formula, any potential liability of Zap Group resulting from the proceedings\nis covered by the indemnification obligations of the former shareholders of Zap Group to Formula.\n\n** **\n\n153\n\n \n\n** **\n\nOn December 30, 2021, Ronen\nHar Even, Galit Har Even and TV Center Ltd. (the “Plaintiffs”) submitted a monetary claim in the sum of NIS 24.5 million (approximately\n$7.0 million) and a claim for the grant of a mandamus order against Zap Group, in the District Court at Haifa. The Plaintiffs allege that\nZap Group constitutes a monopoly in the provision of price comparison services in the online arena in Israel, and excluded the Plaintiffs’\nbusiness from the E-commerce arena in Israel. According to the Plaintiffs, Zap Group prevented price comparisons between the prices of\nthe Plaintiffs’ televisions and the prices of the televisions of the official importers, by causing systemic manipulations aimed\nat excluding the television models sold by the Plaintiffs and blurring the fact that they are cheaper in the search results. As mentioned\nin the Statement of Claim, concurrent with submission of the claim, on April 19, 2021, the Plaintiffs submitted a complaint against Zap\nGroup to the Israel Competition Authority, and on August 18, 2021 and October 21, 2021, submitted supplements to the aforesaid complaint.\nOn June 1, 2022, Zap Group submitted a statement of defense, denying the Plaintiffs’ allegations and in particular the Plaintiffs’\nargument that Zap Group has a monopoly in the provision of price comparison services in the online arena in Israel. Following discovery\nand pre-trial hearings, the Plaintiffs and ZAP Group submitted affidavits of primary testimony in June 2024 and July 2024, respectively.\nOn January 28, 2025, evidentiary hearings began, and have been held since that time. On February 24, 2026, the Plaintiffs’ legal\ncounsel filed a motion to withdraw from representation. As of the date of this filing, the Plaintiffs are representing themselves without\nformal legal representation. At the current stage of proceedings, it is not possible to estimate the outcome of the claim.\n\n \n\nIn\nNovember 2023, N.Z. Marketing and Advertising Ltd (“Safra”), a subsidiary of Zap Group, was added as defendant to a lawsuit\nfiled by the estate of the deceased Klil Kimchi, who died in an accident in a swimming pool in a private house during a social event organized\nby Safra and another company. The deceased was invited as a guest of the other company. The total claim is for an amount of NIS 9.645\nmillion. The other company has filed a third-party notice against Safra. As of May 7, 2024, Safra submitted a statement of defense as\nwell as a third-party notice on its behalf, and no statements of defense have yet been submitted to the third-party notice submitted by\nthe company. On November 14, 2024, a preliminary hearing was held in court, during which the judge suggested that the parties settle the\ncase by paying compensation to the plaintiff. On July 3, 2025, a settlement agreement was executed between the parties, pursuant to it\nwas determined that Safra would pay the plaintiff an amount of approximately NIS 221.9 thousand (approximately $69.2 thousand). Because\nthe incident (in which the deceased died) took place before Zap Group acquired Safra, the liability of Zap Group resulting from the proceedings\nwas covered by the indemnification obligations of the former shareholders of Safra to Zap Group. Following the payment, the\nproceedings against Safra were dismissed.\n\n \n\n**Dividend Policy**\n\n \n\nUnder Israeli law, dividends\nmay be paid by an Israeli company only out of profits and other surplus as calculated under Israeli law, as of the end date of the most\nrecent financial statements or as accrued over a period of two years, whichever amount is greater, and provided that there is no reasonable\nconcern that payment of a dividend will prevent the company from satisfying its existing and foreseeable obligations as they become due.\nSee “*Item 10. Additional Information— Memorandum and Articles of Association— Dividend and Liquidation Rights*”\nbelow (the content of which is incorporated by reference to Exhibit 2.2 to this annual report) for more information.\n\n \n\n*Formula*\n\n \n\nUnder Formula’s dividend\npolicy adopted by our board of directors, sums that are not planned to be used for investments in the near future may be distributed to\nour shareholders as a cash dividend, to the extent that our performance allows such distribution. In the three most recent fiscal years,\nFormula has made the following distributions:\n\n \n\nOn March 26, 2026, in light\nof Formula’s results for the fiscal year ended December 31, 2025, and in particular the completion of the acquisition of Sapiens\nby Advent in December 2025, Formula’s board of directors announced its intention to declare a special cash dividend to Formula’s\nshareholders in an aggregate amount of up to $200 million, following the filing of Formula’s Annual Report on Form 20-F for the\nfiscal year ended December 31, 2025, which was then expected by mid-May 2026. The actual declaration of such dividend, including the determination\nof the record date and payment date, remains subject to the board’s final approval and satisfaction of the conditions for dividend\ndistribution under Israeli law.\n\n \n\n154\n\n \n\n \n\nIn November 2025, Formula declared a dividend to its shareholders in\nan amount of NIS 1.64 per share (approximately $0.52 per share) to be paid on January 13, 2026. The aggregate amount distributed by Formula\nwas approximately NIS 25.1 million (approximately $8.0 million, based on the exchange rate on the payment date).\n\n \n\nIn August 2025, Formula declared a dividend to its shareholders in\nan amount of NIS 1.69 per share (approximately $0.52 per share) to be paid on October 28, 2025. The aggregate amount distributed by Formula\nwas approximately NIS 25.9 million (approximately $8.0 million, based on the exchange rate on the payment date).\n\n \n\nIn May 2025, Formula declared\na dividend to its shareholders in an amount of NIS 1.57 per share (approximately $0.47 per share) to be paid on July 22, 2025. The aggregate\namount distributed by Formula was approximately NIS 24.1 million (approximately $7.2 million, based on the exchange rate on the payment date).\n\n \n\nIn March 2025 Formula declared\na dividend to its shareholders in an amount of NIS 3.45 per share (approximately $0.97 per share) to be paid on May 14, 2025. The aggregate\namount distributed by Formula was approximately NIS 52.9 million (approximately $14.9 million, based on the exchange rate on the payment date).\n\n \n\nIn August 2024, Formula declared\na cash dividend to its shareholders in an amount of NIS 2.32 per share (approximately $0.63 per share), which was paid on September 26,\n2024. The aggregate amount distributed by Formula was approximately NIS 35.6 million (approximately $9.6 million, based on the exchange\nrate on the payment date).\n\n \n\nIn March 2024, Formula declared\na cash dividend to its shareholders of NIS 2.30 per share (approximately $0.61 per share), which was paid on April 18, 2024. The aggregate\namount distributed by Formula was NIS 35.3 million (approximately $9.3 million, based on the exchange rate on the payment date).\n\n \n\n*Matrix*\n\n \n\nIn August 2010, Matrix’s\nboard of directors decided to change Matrix’s dividend distribution policy, whereby in every year, Matrix will distribute a dividend\nat a rate of 75% of its annual net income. The dividend is to be distributed on a quarterly basis. Pursuant to that policy, Matrix has\ndistributed the following amounts in the three most recent fiscal years (as well as early 2026):\n\n \n\nIn March 2026, Matrix declared\na cash dividend to its shareholders of NIS 73.1 million (approximately $24.8 million), in the aggregate, which was paid in May 2026, of\nwhich $13.0 million was paid to non-controlling interests.\n\n \n\nIn November 2025, Matrix declared\na cash dividend to its shareholders of NIS 57.9 million (approximately $18.2 million), in the aggregate, which was paid in December 2025,\nof which $9.4 million was paid to non-controlling interests.\n\n \n\nIn August 2025, Matrix declared\na cash dividend to its shareholders of NIS 54.1 million (approximately $16.3 million), in the aggregate, which was paid in October 2025,\nof which $8.5 million was paid to non-controlling interests.\n\n \n\nIn May 2025, Matrix declared\na cash dividend to its shareholders of NIS 56.6 million (approximately $16.9 million), in the aggregate, which was paid in July 2025,\nof which $8.8 million was paid to non-controlling interests.\n\n \n\nIn March 2025, Matrix declared\na cash dividend to its shareholders of NIS 52.2 million (approximately $13.9 million), in the aggregate, which was paid in April 2025,\nof which $7.2 million was paid to non-controlling interests.\n\n \n\n155\n\n \n\n \n\nIn November 2024, Matrix declared\na cash dividend to its shareholders of NIS 48.3 million (approximately $13.3 million), in the aggregate, which was paid in January 2025,\nof which $6.9 million was paid to non-controlling interests.\n\n \n\nIn August 2024, Matrix declared\na cash dividend to its shareholders of NIS 52.1 million (approximately $14.0 million), in the aggregate, which was paid in October 2024,\nof which $7.3 million was paid to non-controlling interests.\n\n \n\nIn May 2024, Matrix declared\na cash dividend to its shareholders of NIS 51.5 million (approximately $14.1 million), in the aggregate, of which $7.3 million was paid\nto non-controlling interests.\n\n \n\nIn March 2024, Matrix declared\na cash dividend to its shareholders in an aggregate amount of NIS 80.7 million (approximately $21.7 million), which was paid in April\n2024, of which $11.3 million was paid to non-controlling interests.\n\n \n\nIn August 2023, Matrix declared\na cash dividend to its shareholders in an aggregate amount of NIS 43.8 million (approximately $11.5 million), which was paid in September\n2023, of which $6.0 million was paid to non-controlling interests.\n\n \n\nIn May 2023, Matrix declared\na cash dividend to its shareholders in an aggregate amount of NIS 45.1 million (approximately $12.4 million), which was paid in June 2023,\nof which $6.4 million was paid to non-controlling interests.\n\n \n\nIn March 2023, Matrix declared\na cash dividend to its shareholders in an aggregate amount of NIS 37.5 million (approximately $10.2 million), which was paid in April\n2022, of which $5.3 million was paid to non-controlling interests.\n\n \n\n*Magic Software*\n\n \n\nIn August 2017, Magic Software’s\nboard of directors amended its dividend distribution policy, pursuant to which Magic Software distributed a dividend of up to 75% of its\nannual net income attributable to its shareholders (increased from a prior rate of 50%), subject to applicable law. Following the completion\nof the merger between Magic Software and Matrix on February 24, 2026, pursuant to which Magic Software became a wholly-owned subsidiary\nof Matrix, Magic Software’s ordinary shares were delisted from both Nasdaq and the Tel Aviv Stock Exchange and Magic Software ceased\nto be a publicly traded company. As a result, Magic Software no longer has independent shareholders to whom dividends may be declared\nor distributed, and its former dividend distribution policy is no longer applicable. Any future distributions from Magic Software will\nbe made to Matrix as its sole shareholder, in accordance with Matrix’s dividend policy and applicable law. Pursuant to its former\ndividend distribution policy, Magic Software distributed the following amounts during the three most recent fiscal years:\n\n \n\nIn November 2025, Magic Software\ndeclared a cash dividend to its shareholders of $0.151 per share (or approximately $7.4 million, in the aggregate), which was paid during\nDecember 2025, of which $4.0 million was paid to non-controlling interests.\n\n \n\nIn August 2025, Magic Software\ndeclared a cash dividend to its shareholders of $0.296 per share (or approximately $14.5 million, in the aggregate), which was paid during\nOctober 2025, of which $8.6 million was paid to non-controlling interests.\n\n \n\nIn March 2025, Magic Software\ndeclared a cash dividend to its shareholders of $0.327 per share (or approximately $16.1 million, in the aggregate), which was paid during\nMay 2025, of which $8.6 million was paid to non-controlling interests.\n\n \n\nIn November 2024, Magic Software\ndeclared a cash dividend to its shareholders of $0.236 per share (or approximately $11.6 million, in the aggregate), which was paid during\nJanuary 2025, of which $6.2 million was paid to non-controlling interests.\n\n \n\n156\n\n \n\n \n\nIn May 2024, Magic Software\ndeclared a cash dividend to its shareholders of $0.204 per share (or approximately $10.0 million, in the aggregate), which was paid during\nJuly 2024, of which $5.3 million was paid to non-controlling interests.\n\n \n\nIn August 2023, Magic Software\ndeclared a cash dividend to its shareholders of $0.327 per share (or approximately $16.1 million, in the aggregate), which was paid during\nSeptember 2023, of which $8.6 million was paid to non-controlling interests.\n\n \n\nIn March 2023, Magic Software\ndeclared a cash dividend to its shareholders of $0.3 per share (or approximately $14.7 million, in the aggregate), which was paid during\nApril 2023, of which $7.9 million was paid to non-controlling interests.\n\n \n\n*Michpal*\n\n \n\nIn connection with Michpal’s\ninitial public offering on the TASE, which was completed in September 2025, Michpal’s board of directors adopted, on August 27,\n2025, a dividend distribution policy pursuant to which Michpal intends to distribute, on an annual basis, a dividend of up to 50% of its\nannual net income attributable to its shareholders, as reflected in its audited annual financial statements, subject to applicable law.\nThe implementation of the dividend distribution policy in any given year is contingent upon a specific resolution of Michpal’s board\nof directors, including a resolution determining the amount and timing of the distribution, or whether to make any distribution at all.\nIn adopting any such resolution, Michpal’s board of directors will take into account, among other things, Michpal’s operations,\nprojected cash flows, liabilities, cash balances, plans and financial condition at the relevant time, as well as the distribution tests\nset forth in the Companies Law and the board’s assessment of Michpal’s ability to meet its existing and foreseeable obligations\nas they become due. Michpal’s board of directors may, at any time and at its discretion, taking into account business considerations\nand applicable law, amend the distribution policy, including the rate and scope of amounts to be distributed, or resolve from time to\ntime not to make any distribution at all. Pursuant to that policy, Michpal has made the following distribution:\n\n \n\nIn March 2026, Michpal declared\na cash dividend to its shareholders of NIS 5.4 million (approximately $1.8 million), in the aggregate, paid in April 2026, of which approximately\n$0.5 million was paid to non-controlling interests.\n\n  \n\n**B.**\n**Significant Changes**\n\n \n\nSince the date of our consolidated\nfinancial statements included in this annual report, the following significant changes have occurred:\n\n \n\nOn January 13, 2026, the\nboard of directors of TSG Systems approved a financing by way of a private placement to several investors in an aggregate amount of approximately\nNIS 192 million (approximately $60.9 million), as well as an additional financing of approximately NIS 92 million (approximately $29.2\nmillion), subject to the exercise of options granted to investors in that transaction. As a result of the private placement, our direct\nownership interest in TSG Systems was diluted from 37.33% as of December 31, 2025 to 33.38% immediately following the closing of the transaction,\nand was further diluted to 32.87% as a result of subsequent exercises of options by TSG Systems’ employees.\n\n \n\nOn February 4, 2026, Matrix\ncompleted an issuance of convertible debentures (Series 2) with a nominal value of approximately NIS 297 million, for gross proceeds of\napproximately NIS 300.6 million (approximately $93 million). The debentures bear annual interest at a rate of 0.5% and are repayable in\na single installment on February 1, 2031. The debentures are convertible on any trading day, such that each NIS 180 nominal value of debentures\nis convertible into one ordinary share of Matrix, subject to customary adjustments, including adjustments for dividend distributions.\n\n \n\nOn February 24, 2026, Matrix\nand Magic Software completed their merger, as described in “*Item 10. Additional Information— C. Material Contracts—\nMatrix- Magic Software Merger Agreement*”.\n\n \n\n157\n\n \n\n \n\nOther than the foregoing,\nthere have not been any significant changes for our company since the date of our consolidated financial statements included in this annual\nreport."}